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If you use your credit card regularly without making your payments in full, interest piles up. Eventually, you may even max out your credit card. When you reach your credit limit, that comes with several immediate and long-term consequences to your financial health.
“Maxing out your credit cards can harm your financial potential,” says Mason Miranda, a credit industry specialist at Credit Card Insider, a credit card reviews site.
Here’s what you can expect if you max out your credit card — and how to get back on track.
What Does It Mean to Max Out a Credit Card?
Each credit card user is given a credit limit, which represents the maximum amount of money they can access. If you reach your credit limit, you’ve maxed out your credit card and you can no longer charge purchases to your card.
Maxing out a credit card can happen in a variety of different ways. You may have a low available credit line combined with an unexpected expense that causes you to reach your credit limit quickly. Or, you may have a habit of spending more than you can pay off when your bill comes due each month, which can cause you to accumulate a large balance. Lastly, you may be struggling to get by and using your credit card as a lifeline.
“At some point you’ve got to get down to the reason why this happened, and then you’ve got to come up with a plan,” says Beverly Harzog, a credit card expert and Consumer Finance Analyst for U.S. News and World Report.
What Happens When You Reach Your Credit Max?
Maxing out your credit card comes with consequences to your finances and credit score, some immediate and some long term. These include:
- You’ll be declined if you try to use the card. When your card limit is maxed out, the first consequence is that you’re not going to be able to charge anything else. Your card will be declined if you try.
- Interest will pile up. Unless you have a 0% intro APR card, you’ll be on the hook for interest charges if you can’t pay off your card in full by the time the bill is due. “If you max out a credit card and aren’t able to pay it back quickly, you’ll probably spend a lot of extra money on monthly payments due to interest. This can seriously hurt your ability to afford other necessities,” says Miranda.
- You might incur additional fees. Depending on your issuer and terms of your card contract, you could face additional fees for exceeding your limit, Miranda says.
- Your credit score will take a hit. A maxed-out card can hit your credit score in a couple of different ways. First, it will lead to a higher credit utilization ratio, which is how much credit you use compared to how much credit you have available to you across all of your cards. It’s one of the most significant factors contributing to your credit score, second only to your payment history. And if you aren’t able to pay your credit card bill, that will hurt your credit score further. “When you get to the point where you’ve maxed out a credit card, you’re not in good shape financially,” says Harzog. “It gives a signal to a credit card issuer that maybe you’re having financial difficulty and you might suddenly seem risky.”
Can You Get Your Credit Limit Raised?
One way to avoid maxing out your credit card is to spend less on that card. But sometimes, even if you’re not using your card excessively, you may find yourself regularly reaching the credit limit because you have a low credit line. In this case, getting a credit line increase might be the best solution. Here are two ways to do that.
Try asking your credit card issuer directly
If you’re regularly maxing out your credit card, but you have the means to pay off the balance, you could try contacting your credit card issuer to ask for a credit limit increase. If you have a solid payment history at that point and a healthy credit file, they are likely to agree.
You can ask your credit card issuer for a credit line increase, which will reduce your credit utilization ratio.
This strategy could actually help boost your credit score. “One of the best ways to increase your score is asking for a credit line increase and not using it,” says Tori Dunlap, founder of Her First $100K and host of the Financial Feminist podcast.
But if your card is already maxed out or even over your credit limit because of fees and interest charges, you might have a harder time here.
“If you’ve got a maxed out credit card, they’re probably not going to give you an increase unless you have a good reason,” says Harzog. For example, if you made a large, necessary purchase such as a large appliance and have a plan to pay it back the next 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
Another way to increase your overall credit limit is to apply for a new card. However, keep in mind you’re unlikely to be approved if you’re using the majority of your available credit on the cards you already carry. Your credit utilization ratio makes up 30% of your FICO score. “The golden standard for your credit utilization ratio is under 30%. But if you really want to get a good score… you want to keep your utilization under 10%,” suggests Harzog.
To keep your utilization ratio low, consistently pay off the full statement balance each month, says Miranda. “If you end up using a lot of your credit limit, consider making payments throughout the month to reduce your statement balance for that billing period.”
Can You Still Use Your Card?
Once you’ve reached your credit limit, your credit card will likely be declined. Some issuers may allow you to spend over your limit to a point. If you’ve signed up for over-limit protection, you may be able to continue using your card, but you may be charged a fee or a higher interest rate. That fee can be no more than $25 for your first over-limit charge, according to the Consumer Financial Protection Bureau.
Harzog doesn’t recommend signing up for over-limit protection, however. When you’ve maxed out a credit card, your focus should be on paying down debt. That means you should immediately stop using your card and come up with a repayment plan. “If you are putting purchases on a credit card that you cannot pay off on time and in-full, you don’t want to be using a credit card at all,” says Dunlap. You should also work on building an emergency fund so you don’t have to turn to a credit card when an emergency arises.
Is It Bad to Max Out Your Credit Card?
Maxing out a credit card can have serious financial consequences, especially if it’s your only card. That’s because you’ll have a 100% credit utilization ratio for that card, which will likely hurt your credit score and make you look risky to lenders. “Lower credit scores can lead to higher interest rates on future borrowing, such as car loans and mortgages, which means more money out of your pocket,” says Miranda.
How to Pay Off a Maxed-Out Credit Card
If you’ve already maxed out a credit card, 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 maxing out your credit card is to review the purchases and make sure nothing is fraudulent. After that, you should make a plan to repay the debt. If you get to the point where you’re not 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 to get 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 balance transfer credit card. For a one-time transfer fee that will be a percentage of your balance, you can move your balance to a card with a 0% introductory APR. This can help you save money on interest. However, Dunlap warns that you’ll need a concrete repayment plan if you do complete a balance transfer, since you’ll still be on the hook for interest once the introductory period ends. “A lot of people end up using that as a band aid solution,” she says.
- Look into personal loans. Lastly, consider taking out a debt consolidation loan from a credit union, bank or online lender. This is a personal loan issued at a fixed interest rate that you can use to pay down higher interest debt like credit cards. That would leave you with one loan to pay off instead. Just be sure that the interest rate you’re getting is low enough that you’re actually saving money.