Charging credit cards to the limit can be a recipe for ruined credit.

3 minute read

Once you have a few credit cards in your wallet, your credit score can improve over time if you make all your monthly credit card payments by the statement due date. On the other hand, if you pay more than 30 days late on a regular basis, your credit score will likely take a hit. But making late payments on your credit cards isn’t the only thing that can hurt your credit.

Maxing out your credit cards – or maybe even your only credit card – can also have a negative impact on your credit score and ability to obtain new credit.

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1. Maxed out cards raise your credit utilization ratio

One of the biggest factors in your credit score is your credit utilization rate – the ratio of your revolving debt to the amount of available credit – which accounts for roughly 30% of your total credit score. Most experts recommend keeping your $utilization rate under 30%. That’s because maxing out your credit cards will raise your credit utilization rate and lower your credit score.

For example, if you have two credit cards with credit limits of $5,000 each and no balance, your available credit would be $10,000 and your credit utilization ratio would be 0%. If you carry a $2,000 balance, your credit utilization rate would be 20%, still under the recommended ratio.

But if you max out both cards, carrying a balance of $10,000, your credit utilization rate would be 100%, which will likely lower your credit score. Even if you max out only one card and have no balance on the other, your credit utilization rate would be 50%, well over the recommended 30%.

Find out: How to Get Negative Items Off Your Credit Report

2. You have a greater risk for paying late

The more credit card debt you have, the more likely you may be to struggle with paying all your monthly bills on time. So, maxed-out credit cards can be a recipe for making late payments and paying up to $40 for the late fee charged by your card’s issuer.

Since payment history makes up 35% of your credit score, paying late will also lower your credit score. Better to keep your balance low, so you can pay it off monthly by the due date and avoid late fees, interest, and negative payment history on your credit report.

Find out: Don’t Make These 7 Credit Card Mistakes 

3. You may have to pay over-the-limit fees

When you max out a credit card, you could unwittingly exceed the credit limit – the maximum amount you’re allowed to charge on the card extended by the issuer. If your balance is higher than your credit card limit, the credit card company may charge an over-limit fee.  According to the federal Credit CARD Act, the fee can be $25 the first time you go over the limit and $35 other times you do so within a six-month period, according to major credit bureau Experian.

However, legal limitations also prevent credit card companies from abusing cardholders with these over-limit fees. Credit card issuers are required to offer cardholders the opportunity to “opt-in” to the issuer paying over-the-limit transactions. Unless the cardholder consented to the opt-in terms, the credit card company isn’t allowed to charge an over-the-limit fee. The issuer also isn’t allowed to charge you more than one over-the-limit fee per billing cycle.

Find out: How to Avoid the Most Common Credit Card Fees

4. It’s harder to dig out of debt

It’s hard enough to cut back on expenses and purchases while you try to knock out a pesky $1,000 balance on a credit card. But when all your cards are maxed out, so you owe thousands of dollars in credit card debt, it’s really hard to dig your way out.

Not only will you have to make big financial sacrifices if you ever want to get out of debt, but you’ll also carry the weight and stress of your money troubles into work and your relationships.

Find out: How to Get Rid of Credit Card Debt

5. You won’t have any available credit

There’s nothing like a credit card to help pay for emergency car repairs, broken appliance repairs or an unexpected medical or veterinary bill. But if your cards are maxed out, you’re stuck with scrounging up that money elsewhere.

Want to avoid borrowing from friends and family or selling stuff you’d rather keep so you can pay a bill? Do your best to leave an available credit amount on the card to cover emergencies.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

Published by Debt.com, LLC