3 Reasons Never to Max Out Your Credit Cards

by Christy Bieber | Updated July 21, 2021 - First published on May 21, 2021

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A table of four paying the bill with a credit card at a restaurant.

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The consequences could go beyond just the impact on that credit card.

When you get a credit card, your card issuer will give you a limit on how much you can spend. For example, you may be given a $5,000 credit limit when you apply for a new card.

While it may seem logical that you could spend up to this limit, doing so (maxing out your credit cards) could damage your financial situation.

Here are three big reasons why maxing out your cards should be avoided whenever possible.

1. You risk going over the limit

If you've maxed out your credit cards, you have no margin for error. Charging anything else will lead to you exceeding your credit limit. This could easily happen if you have a recurring charge you forget about, or a purchase is delayed in processing to your card.

Unfortunately, many credit cards charge over-the-limit fees, so this could be a costly error to make.

2. You could damage your credit score

The amount of your available credit that you use is a key component in your credit score. It's called your credit utilization ratio. This number is calculated by dividing the credit you've used by the credit you have available. For example, if you have a credit limit of $5,000 and you've charged $2,000, your credit utilization ratio is 40% ($2,000 divided by $5,000 is 40%).

A credit utilization ratio over 30% is enough to damage your score. It suggests to potential lenders that you may not be responsible with managing debt and that you might be getting in too deep with your creditors.

If you've maxed out your cards, your utilization ratio is 100%. This is concerning to potential lenders and is likely to cause a serious hit to your credit score -- and to your future borrowing prospects.

3. It will be harder to pay off your cards

The more you charge on your cards, the more you must pay off. If you don't have the money to pay your balance in full each month, interest will accrue. The interest rate on credit cards is typically pretty high. And if you've maxed out your cards, you'll be charged interest on a large balance, which can be very expensive.

It could take decades to pay off even a relatively small credit card balance if you're only making minimum payments. If you've maxed out your cards and are accruing hundreds or thousands of dollars in interest each year as a result, then it'll be extremely difficult -- and costly -- to ever climb out of debt.

Ideally, you should avoid getting anywhere close to maxing out your credit cards. Instead, use your cards responsibly to spend a reasonable amount each month and then pay off your balance in full.

If you find that you're on the brink of maxing out your cards each month, even if you know you can pay off the full balance, consider asking for a credit line increase. Just make sure you are 100% confident you can pay off whatever you're charging without owing interest.

For example, if you routinely charge $4,500 on your card in monthly expenses and you pay it off, but your creditors are reporting a 90% utilization ratio, asking for an increase to your credit card limit could help you avoid damage to your credit score.

If you've already maxed out your cards, it's not too late to change course. Make a debt payoff plan, get serious about not charging any more on your cards, and watch your credit score improve as you make these efforts.

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