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If you regularly use your credit card without making your payments in full, interest accumulates. Ultimately, you can even maximize your credit card. Reaching your credit limit has several immediate and long-term consequences on your financial health, such as increasing your credit card debt and reducing your credit card rewards.
Credit card providers often impose penalties on maxed-out credit cards. “Maximizing your credit cards can hurt your financial potential,” says Mason Miranda, credit industry specialist at Credit Card Insider, a credit card review site.
Here’s what you can expect if you’re using your credit card to the max – and how to get back on track by managing your credit card balance.
What does maximizing a credit card mean?
Each rewards credit cards user is assigned a credit limit, the maximum amount they can access. If you reach your credit limit, you have depleted your credit card and can no longer charge your card for purchases. Regular credit card spending and proper credit card usage can eventually lead to a credit card limit increase.
The maximum of credit cards, or a maxed-out card, can happen in several ways. You can have an available low line of credit combined with an unexpected expense that causes you to hit your credit limit quickly. Or, you may have a habit of spending more than you can afford when your bill comes due each month, which can cause you to build up a large balance. Finally, you might struggle to get by and use your credit card as a lifeline.
“At some point, you have to figure out why this happened and then devise a plan,” says Beverly Harzog, credit card expert and consumer finance analyst for US News and World Report.
What Happens When You Reach Your Maximum Credit?
Maximizing your credit card has consequences for your finances and your credit score, some immediate and others long-term. These include:
- Credit Utilization Ratio: The credit utilization ratio is the percentage of your available credit that you’re using. A high credit utilization ratio can negatively impact your credit score. It’s important to keep your credit utilization ratio low to maximize your credit card.
- Credit Card Rewards Program: Maximizing your credit card may also entail taking advantage of the credit card rewards program. This can include earning points, miles, or cash back based on spending. It’s important to consider the benefits of the credit card rewards program when making purchases.
- Benefits of Credit Card: Using your credit card wisely can provide several benefits, such as cashback, rewards, and building your credit history. However, it’s essential to remember these benefits only come when you practice responsible credit card use.
- Credit Card Statement: A credit card statement summarizes your credit card activity for a specific period. It includes your transactions, payment history, and balance. Monitoring your credit card statement allows you to track your spending, manage your credit utilization ratio, and quickly identify unauthorized charges.
- Credit Card Debt Statistics: Maximizing your credit card usage without a proper plan can increase debt. This adds to the growing credit card debt statistics and burdens you with high-interest rates, late fees, and potential damage to your credit score. It’s important to be mindful of your credit card usage and how it plays into the larger picture of personal debt.
- You will be refused if you try to use the card. When you exceed your card limit, the first consequence is that you can no longer charge anything. Your card will be refused if you try. Make sure to pay your bills on time to avoid this situation.
- Interest will accumulate. Unless you have a 0% introductory APR card, you will have to pay interest charges if you cannot pay your card in full by the time the bill is due. “If you’re using a credit card to the max and unable to pay it off quickly, you’re likely going to be spending a lot of extra money on monthly payments because of the interest. This can seriously affect your ability to afford other necessities and your everyday spending,” says Miranda.
- You may incur additional charges. Depending on your issuer and the terms of your credit card accounts, you may have to pay additional fees if you go over your limit, says Miranda.
- Your credit score will take a hit. One card at maximum can affect your credit score in several ways. Firstly, it will result in a higher credit utilization rate – the amount of credit you use compared to the amount of credit you have on all of your cards. This is one of the most important factors contributing to your credit score right after your payment history. And if you cannot pay your bills on time, it will hurt your credit score even more. “When you reach the point where you’ve exhausted your credit card, you’re not in good financial shape,” says Harzog. “This signals to a cash-back credit card issuer that you may be having financial difficulty and suddenly you might seem risky. “
Can you increase your credit limit?
One way to avoid maxing out your current credit card is to spend less on that card. But sometimes, even if you don’t overuse your card, you can regularly find yourself hitting your credit limit because your line of credit is low. In this case, increasing the line of credit might be the best solution. Here are two credit card options to do it.
Try asking your credit card issuer directly.
If you regularly use your credit card to the max but can afford to pay off the balance, you can try contacting your credit card issuer to request an increase in your credit limit. They’re likely to agree if you have a solid payment history at this point and healthy credit history. Establishing a strong credit card issuer partnership can also help.
You can ask your credit card issuer to increase your credit limit, which will lower your credit utilization rate. Additionally, consider increasing your rewards rate by strategically managing your credit card spend to get the most out of your card’s benefits.
This strategy could help increase your credit score. “One of the best ways to increase your score is to ask for a credit line increase and not to use it,” says Tori Dunlap, founder of Her First 100K and host of the Financial Feminist podcast.
But if your card is already at or over your credit limit due to fees and interest, you might have a challenging time here.
“If you have a max credit card, they probably won’t give you a raise unless you have a good reason,” says Harzog. For example, if you made a large and necessary purchase, like a major appliance, and you plan to pay it off the following month, your credit card issuer might agree to give you a higher limit, especially if you have a strong payment history.
Consider applying for a new line of credit elsewhere.
To face this situation, you can explore other credit card offerings and submit credit card applications to different issuers. It’s essential to review the credit card agreement carefully before committing to a new card. If approved for a new card, try to maintain a low balance and pay the minimum payment or more on each card. Using a single credit card can help you focus your spending and payment efforts, creating a controlled use of your available credit and a more efficient pay-off strategy.
Another way to increase your overall credit limit is to apply for a new card. However, remember that you are unlikely to be approved if you are using the majority of your available credit on cards you already own. Your credit utilization rate is 30% of your FICO score. “The gold standard for your credit utilization rate is less than 30%. But if you want to score well, keep your usage below 10%, ”suggests Harzog.
One advantage of credit card usage is the ability to make credit card purchases more conveniently. To manage the amounts of credit card usage effectively, consider following some credit card tips like paying off the full statement balance every month, as Miranda suggests. “If you’re using a lot of your credit limit, consider making payments throughout the month to reduce your statement balance for that billing period. “
Also, be aware of Credit card minimum payments and try to pay more than the minimum amount whenever possible to avoid accumulating interest and debt.
Can you still use your card?
Your credit card will likely be declined once you’ve reached your credit limit. Some issuers may allow you to exceed your limit until a certain point. If you have purchased over-limit protection, you may be able to continue using your card, but you may incur a higher fee or interest rate. According to the Consumer Financial Protection Bureau, these fees cannot exceed $ 25 for your first limit violation.
However, Harzog does not recommend taking out over-limit protection. When you’ve exhausted your credit card, you need to focus on paying off your debt. You should immediately stop using your card and develop a repayment plan. “If you place purchases on a credit card that you can’t pay on time and in full, you don’t want to use a credit card at all,” says Dunlap. You should also work on building an emergency fund so that you don’t have to resort to a credit card in an emergency.
To avoid reaching your credit limit, consider looking into other options, such as array of credit cards, cash rewards credit cards, or cashback credit cards. These cards can offer a credit card bonus or credit card category bonuses to help you manage your spending and gain rewards efficiently.
Is It Wrong to Maximize Your Credit Card?
Maximizing a credit card can have serious financial consequences, especially if it’s your only card. This is because you will have a 100% credit utilization rate for this card, which will likely hurt your credit score and make you appear risky in the eyes of lenders. “Lower credit scores can result in higher interest rates on future loans, such as auto loans and mortgages, which means more money out of your pocket,” says Miranda. Moreover, keeping track of credit card receipts and being aware of the different credit card rewards categories can help you make better decisions when utilizing your credit card. Remember, it’s important to consult a credit card master when in doubt about maximizing your credit card usage.
How to pay off a maximum credit card
If you’ve already used your credit card to the fullest, there are steps you can take to repair your credit score and manage your debt. Here are some ways to get your finances back on track:
- Make a plan. Dunlap says the first step after you run out of credit cards is to review purchases and make sure nothing is fraudulent. After that, you should make a plan to pay off the debt. If you get to the point where you aren’t able to make your payments, you should call your credit card company and ask to be put on a hardship plan, according to Harzog. And you can always contact the National Foundation for Credit Counseling for a free one-hour credit counseling session.
- Consider a balance transfer. Once you’ve paid off some of your balance and your credit score starts to rise, consider your eligibility for a credit card with a balance transfer. For a one-time transfer fee that will be a percentage of your balance, you can transfer your balance to a card with an introductory APR of 0%. It can help you save money on interest. However, Dunlap cautions that you will need a concrete repayment plan if you do a balance transfer, as you will still need to pay interest after the introductory period. “A lot of people end up using this as a band-aid solution,” she says.
- Examine personal loans. Finally, consider taking out a debt consolidation loan from a credit union, bank, or online lender. This personal loan is issued at a fixed interest rate that you can use to pay off higher-interest debt like credit cards. This would leave you with a loan to repay instead. Just make sure the interest rate you are getting is low enough to save money.