Why You Shouldn’t Max Out Your Credit Cards

There are many reasons that you shouldn’t max out any of your credit cards. You should only max them out if there is an emergency or some other valid reason. They can be hard to pay down once the interest starts building up and it should be avoided. Not only do the high balances affect your credit score, but they are also hard to pay off when the bills start coming in if you haven’t budgeted properly.

 

Maxing out the cards will cause a drop in your credit score. How you wonder? Well, the credit utilization rate will go up significantly, and that means that the amount of credit limit you have versus how much you have spent. This counts for 30% of your credit score so make sure to keep the score down low.

 

Most top credit card companies don’t like it when the cards are maxed out. Yes, it makes them more money because of the interest, but it will affect your future loans. If the banks or other lenders see that one of your cards is maxed out it is very unlikely that they will approve your loan request.

 

Once the credit card is maxed out there is the risk of going over the limit. This is not a good thing and will incur even more fees and charges. The finance charges alone can make your balance go over and it can be extremely hard to get it under control. Unless you can pay a significant amount every month that the balance is over you will get hit with more and more fees.

 

It is harder to pay off. That is a fact, because even if you are just making the bare minimum payments it will take years. The best thing to do is to pay off as much as you can, even if it is barely more than the minimum payment so that the limit goes down. If you can’t put extra cash down near the due date do it later if you can. The more you pay on the credit card the more the balance will go down and the lower your finance charges will be.

 

You could possibly get a higher interest rate. Some companies have a clause in the terms that if you max out on the card they can hike up your interest rate. It is normally the highest interest rate that can be charged and is usually around 30%. If this rate is put into place it can be hard to get it taken down and the fees and charges will be astronomical.

 

There are many different ways to keep the balance to a minimum, but you should always avoid maxing out your credit cards unless you have a guaranteed way to pay them in full every month. The ideal credit limit for any card is around 10%. You should shoot for that goal, butit is most likely not realistic and if possible, it should be kept beneath 30%. Otherwise, it will directly affect your credit score and the likelihood of you getting other loans and cards approved.

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