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If you regularly use your credit card without making your payments in full, interest accumulates. Ultimately, you can even maximize your credit card. When you reach your credit limit, it has several immediate and long-term consequences on your financial health.
“Maximizing your credit cards can hurt your financial potential,” says mason Miranda, credit industry specialist at Credit Card Insider, a credit card review site.
Here’s what you can expect if you’re using your credit card to the max – and how to get back on track.
What does it mean to maximize a credit card?
Each credit card user is assigned a credit limit, which is the maximum amount they can access. If you reach your credit limit, you have depleted your credit card and can no longer charge your card for purchases.
The maximum of a credit card can happen in a number of ways. You can have a low available line of credit combined with an unexpected expense that causes you to quickly hit your credit limit. Or, you may have a habit of spending more than you can afford when your bill comes due each month, which can cause you to build up a large balance. Finally, you might be struggling to get by and use your credit card as a lifeline.
“At some point you have to figure out why this happened and then you have to make a plan,” says Beverly harzog, credit card expert and consumer finance analyst for US News and World Report.
What Happens When You Reach Your Maximum Credit?
Maximizing your credit card has consequences for your finances and your credit score, some immediate and others long term. These include:
- You will be refused if you try to use the card. When your card limit is exceeded, the first consequence is that you will no longer be able to charge anything. Your card will be refused if you try.
- Interest will accumulate. Unless you have a 0% introductory APR card, you will have to pay interest charges if you cannot pay your card in full by the time the bill is due. “If you’re using a credit card to the max and you’re not able to pay it off quickly, you’re likely going to be spending a lot of extra money on monthly payments because of the interest. This can seriously affect your ability to afford other necessities, ”says Miranda.
- You may incur additional charges. Depending on your issuer and the terms of your card contract, you may have to pay additional fees if you go over your limit, says Miranda.
- Your credit score will take a hit. One card at maximum can affect your credit score in a number of ways. Firstly, it will result in a higher credit utilization rate – that is, the amount of credit you use compared to the amount of credit you have on all of your cards. This is one of the most important factors that contribute to your credit score, right after your payment history. And if you are unable to pay your credit card bill, it will hurt your credit score even more. “When you reach the point where you’ve exhausted your credit card, you’re not in good financial shape,” says Harzog. “This signals to a credit card issuer that you may be having financial difficulty and suddenly you might seem risky. ”
Can you increase your credit limit?
One way to avoid maxing out your credit card is to spend less on that card. But sometimes, even if you don’t overuse your card, you can regularly find yourself hitting your credit limit because your line of credit is low. In this case, getting an increase in the line of credit might be the best solution. Here are two ways to do it.
Try asking your credit card issuer directly
If you regularly use your credit card to the max, but can afford to pay off the balance, you can try contacting your credit card issuer to request an increase in your credit limit. If you have a solid payment history at this point and a healthy credit history, they’re likely to agree.
You can ask your credit card issuer to increase your credit limit, which will lower your credit utilization rate.
This strategy could actually help increase your credit score. “One of the best ways to increase your score is to request a credit line increase and not use it,” says Tori Dunlap, Founder of His first $ 100,000 and host of the Feminist Financial Podcast.
But if your card is already at or even over your credit limit due to fees and interest, you might have a harder time here.
“If you have a max credit card, they probably won’t give you a raise unless you have a good reason,” says Harzog. For example, if you made a large and necessary purchase, like a major appliance, and you plan to pay it off the following month, your credit card issuer might agree to give you a higher limit, especially if you have a strong payment history.
Consider applying for a new line of credit elsewhere
Another way to increase your overall credit limit is to apply for a new card. However, keep in mind that you are unlikely to be approved if you are using the majority of your available credit on cards you already own. Your credit utilization rate is 30% of your FICO score. “The gold standard for your credit utilization rate is less than 30%. But if you really want to score well… you want to keep your usage below 10%, ”suggests Harzog.
To keep your usage rate low, always pay off the full statement balance each month, says Miranda. “If you’re using a lot of your credit limit, consider making payments throughout the month to reduce your statement balance for that billing period. “
Can you still use your card?
Once you’ve reached your credit limit, your credit card will likely be declined. Some issuers may allow you to exceed your limit up to a certain point. If you have purchased over limit protection, you may be able to continue using your card, but you may be charged a higher fee or interest rate. These fees cannot exceed $ 25 for your first over-limit fee, depending on the Consumer Financial Protection Bureau.
However, Harzog does not recommend taking out over limit protection. When you’ve exhausted your credit card, you need to focus on paying off your debt. This means that you should immediately stop using your card and develop a repayment plan. “If you place purchases on a credit card that you can’t pay on time and in full, you don’t want to use a credit card at all,” says Dunlap. You should also work on building an emergency fund so that you don’t have to resort to a credit card in an emergency.
Is It Wrong to Maximize Your Credit Card?
Maximizing a credit card can have serious financial consequences, especially if it’s your only card. This is because you will have a 100% credit utilization rate for this card, which will likely hurt your credit score and make you appear risky in the eyes of lenders. “Lower credit scores can result in higher interest rates on future loans, such as auto loans and mortgages, which means more money out of your pocket,” says Miranda.
How to pay off a maximum credit card
If you’ve already used your credit card to the fullest, there are steps you can take to repair your credit score and manage your debt. Here are some ways to get your finances back on track:
- Make a plan. Dunlap says the first step after you run out of credit card is to review purchases and make sure nothing is fraudulent. After that, you should make a plan to pay off the debt. If you get to the point where you aren’t able to make your payments, you should call your credit card company and ask to be put on a hardship plan, according to Harzog. And you can always contact the National Foundation for Credit Counseling for a free one-hour credit counseling session.
- Consider a balance transfer. Once you’ve paid off some of your balance and your credit score starts to rise, think about your eligibility for a credit card with balance transfer. For a one-time transfer fee that will be a percentage of your balance, you can transfer your balance to a card with an introductory APR of 0%. It can help you save money on interest. However, Dunlap cautions that you will need a concrete repayment plan if you do a balance transfer, as you will still need to pay interest after the introductory period is over. “A lot of people end up using this as a band-aid solution,” she says.
- Examine personal loans. Finally, consider taking out a debt consolidation loan from a credit union, bank, or online lender. This is a personal loan issued at a fixed interest rate that you can use to pay off higher interest debt like credit cards. This would leave you with a loan to repay instead. Just make sure the interest rate you are getting is low enough to save money.