How other credit factors come into play
Maxing out a credit card will impact your credit utilization ratio. But whether the impact is tiny or huge depends on at least three other credit factors, including how many credit cards you have.
How many credit cards you have
If you have multiple credit cards, maxing one out might not impact your credit score. Credit issuers only care about how much of your total available credit you use at any one time.
Say you have four credit cards, each with a $2,500 credit limit. Your total available credit is the sum of their limits, which adds to $10,000. If you max out one card and leave the others alone, your credit utilization is 25%. That's beneath the 30% limit recommended by experts, so your credit score will probably be OK.
If you only have one credit card and max it out, you are using 100% of your credit utilization. That will probably have a large, negative impact on your credit score.
Your existing credit score
Your existing credit score matters. Generally speaking, someone with a good credit score would be punished more for "bad credit behavior" than someone with a poor score. Depending on your existing credit, your score could drop by 40 points or more.
How long it takes to pay off the balance
The longer you wait to pay off your credit card balance, the longer your balance stays high. If you only make minimum payments, you could be charged credit card interest above and beyond your credit limit. Unless you pay off the card, you could find yourself lifting a growing debt pile. If that leads to you making late payments, then your credit score could tank even further.
Is maxing out a credit card ever a good idea?
Maxing out a credit card is rarely a good financial move, but there are exceptions. If you have no other way to pay a necessary expense, such as a medical emergency, you might need to max out a credit card -- and that's okay. (Note: If you're currently facing high medical bills, you might benefit from our guide to financing medical expenses.)
You may also consider maxing out a credit card during a balance transfer to take advantage of a low interest rate. Your credit utilization will remain the same since you're just shifting money from one card to another, but you'll pay less interest over the long run.
Example: Say you have five credit cards, each with a $2,000 balance and an 18% interest rate. You get a new credit card with a $10,000 limit and a 0% intro APR on balance transfers for 18 months. You could transfer all of your existing balances to the new card and pay no interest while you work on paying off debt for the next 18 months.
Fact Checked
Eric McWhinnie
