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Lower Than The Limit

June 14, 2021

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Why maxing out your credit cards is a bad idea

The credit limit issued by credit card companies should be taken with a big grain of salt. Let’s say the issuer says your card spending limit is $7,000. Great, right? You should feel free to use every penny of that limit as long as you can pay off the balance eventually, right? Well, no, not really. Here are some reasons you should not max out your credit card.

You Could Go Over

If you’re maxing out your credit card, you put yourself in danger of going over the spending limit. All it takes is one, forgotten recurring monthly charge and bam! You’re over the limit and likely facing over-the-limit fees.

You Could Hurt Your Score

As USA Today notes, one of the key factors in your credit score is your credit utilization ratio. This is the amount of credit you’ve used divided by the total amount of credit available to you. You always want to keep your ratio at 30 percent or below. If you are maxing out your cards, your ratio is 100 percent. That will hurt your credit score and that’s never good.

You Could Dig Yourself Deep

This should seem obvious, but the more you spend on your card, the more you have to pay each month. If you can’t make the full payment, you’ll get hit with interest. The bigger the balance on your card, the bigger the interest charge. You see where we’re going with this. Keep your credit spending manageable so that you don’t dig yourself a debt hole.

 

 

Article originally posted by Chris O'Shea on savvymoney.com

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