Here's What Happens to Your Credit Score When You Max Out Your Credit Cards

The spending limits that credit card companies set aren't arbitrary. They're commonly based on factors such as your income.

There may come a time when you're about to max out your credit cards, whether because you're charging a single large purchase or because you got hit with a series of unplanned bills. Maxing out your credit cards is not a good thing, because it means you won't have any wiggle room to charge additional expenses as they arise. But maxing out credit cards can also result in credit score damage.

The problem with maxing out credit cards

You might assume that maxing out your credit cards isn't such a big deal. After all, if your credit card issuers collectively determine that you can carry up to a $10,000 balance, and you hit that limit, what's the issue?

The problem, though, is that your credit utilization ratio is a big factor that goes into calculating your credit score, and it measures the amount of revolving credit you're using at once. A ratio above 30% has the potential to cause credit score damage. And if you're maxing out your credit cards, it means you're at 100% utilization, which is even worse from a credit score perspective.

What sort of credit score damage will maxing out cause?

The extent to which maxed out credit cards will impact your credit score will depend on what that number looks like to begin with. FICO says that if you're starting off with a credit score of 793, maxing out your credit cards might drag your score all the way down to 665. That's a drop of 128 points. 

However, if you're starting off with a credit score of 669, maxing out your credit cards might lower your score down to 640. That's just a 29-point drop.

Now, you may be thinking "what gives?" But the reason maxing out credit cards will cause more damage to a higher credit score is that it's more out of character for a score of that level. As such, the damage is more significant.

How to avoid maxing out your credit cards

If you're getting close to maxing out your credit cards, it's important to do a deep dive into your spending and find ways to curb it until you're able to chip away at your balances. You may even need to consider taking on a second job to drum up cash to whittle your balances down. 

Of course, one option you can look at is asking your credit card issuers to raise your credit limits. If your income has increased since applying for those cards, you may get more spending power out of them.

But remember, the higher your credit limit, the more debt you might potentially rack up. So be very careful when asking for a credit limit increase, especially if you've run into problems with maxing out your credit cards before. 

Also keep in mind that even if your credit cards aren't maxed out, using 70% or 80% of your total credit limit at once could cause a lot of credit score damage, too. So it's always a good idea to keep tabs on your credit card balances and take steps to reduce your spending once they start creeping upward in a notable way.