1. Your Credit Score Can Drop
A large part of your credit score – 30% – depends on how much of your available credit you are using. This ratio is known as your credit utilization ratio. The higher your credit utilization ratio or the closer your credit card balance is to your credit limit, the greater its impact on your credit score.
2. It Becomes Harder to Get Approved for Other Loans
A maxed-out credit card can lead to rejection of your mortgage or auto loan application. When applying for a loan, banks will check how much of your available credit you are using. If your credit card balance is too high, banks see it as a sign that you have more debt than you can handle.
3. Increases the Risk of Going Over Your Credit Limit
Even if you keep your balance below your credit limit, you may end up exceeding your credit limit once financing charges are applied to your balance. Once your balance exceeds your credit limit, additional penalties can be imposed, increasing your over-limit amount.
4. Makes Paying Off the Balance Difficult
Depending on your credit limit, it can take years to pay off a maxed-out credit card, especially if you’re only making the minimum payments each month. You may plan to pay off the balance in full, but unexpected expenses may leave you unable to do so when the due date approaches.
5. Can Trigger Penalty Rates
Credit card companies reserve the right to raise the interest rate on your credit card if you violate the terms of your credit card by going over your credit limit. A penalty rate is the highest interest rate that your credit card company can impose and can reach 30% or more depending on your credit card terms.
6. Higher Minimum Payment
The minimum payment is based on the size of your credit card balance. The higher your balance, the higher your minimum monthly payments will be. Maxing out your credit card increases the amount you need to pay each month.
7. Your Credit Card is No Longer Useful
One reason for getting a credit card is to have a means of accessing credit when you need it. However, maxing out your credit card leaves you with no available credit to use for purchases. You won’t be able to use your credit card for emergencies or even to book a car or hotel. This is when you might feel that your credit card is truly a burden.
A Reasonable Credit Card Balance
It’s best to keep your credit card balance low enough that you can afford to pay it off each month, keeping in mind that any balance above 30% can negatively impact your credit score. To avoid accidentally maxing out your credit card, check your credit limit before making a purchase with your credit card.
Source: https://www.thebalancemoney.com/maxed-out-credit-card-960257
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