5 Reasons a Maxed-Out Credit Card is Bad

Question:

My credit cardi is maxed out and I'm struggling to pay it down. How will this affect my credit in the long run?

Answer:

That's a great question and it's something that many people struggle with so you're not the only one going through this. Credit cards have a maximum credit limit - which is the maximum amount you can charge before a penalty. But this doesn't mean that you should max out your credit limit on your card. In fact, bad things often happen when you max out or come close to maxing out your credit limit on your card.

Your Credit Score Drops

30% of your credit score is based on how much of your available credit you're currently using. This ratio of credit card balances to credit limits is known as your credit utilization. The greater your credit utilization or the closer your credit balances are to your credit limit, the more your credit score will be damaged and harder to fix. So as you can see, maxing even a single credit card can seriously damage your credit score. But maxing out all your credit cards is even worse.

Lenders Don't Like It.

Anytime you apply for a loan or a new credit card, lenders want to see how much of your available credit you're using. If your credit card balances are too high, banks take that as you have more debt than you can handle. Maxed out credit card balances could get your credit card and loan applications denied.

You Risk Exceeding Your Credit Limit.

Even if you keep your balance just below your credit limit, you could still end up over your credit limit once finance charges are applied to your balance. And after your balance goes over the limit, it can be hard to get it back down because you're charged an over limit fee every month your card is over its limit. So do your best to stay as far away from your credit limit as possible to avoid the over the limit fee from your lending institution.

Your Balance Is Harder To Repay.

Depending on what your credit limit is, if your balance is maxed out, it could take years to pay it off, especially if you're only paying the minium monthly balance. The problem is that even if you plan to pay off your balance in full each month, it it's high, you could have a difficult time parting with that much money at one time.

You Might Trigger The Default Rate From Your Lender.

Most people aren't aware of this, but credit card companies are well within their rights to raise your interest rate on your card if you violate your credit card terms and max out your credit card. The default rate is the highest interest your credit card company can charge and is typically a minimum of 30%. And a high interest rate applied to a high balance is disastrous for your credit card repayment plan.

The Last Word.

Do your best to keep your credit card balance below 30% of your credit limit. That's typically a manageable credit card balance that's good for your credit score and acceptable to lenders. If you want to avoid maxing out your credit card by mistake, check your balance before you make any major purchases.


Most people understand that maxing out credit cards is bad, but they don't understand the consequences that happen behind the scenes and how it can affect you in the long run. If you need to repair your credit , start working on the simplest things first like paying more than the monthy minium payment. If you're still struggling to fix your credit , try talking to your lenders. You'd be surprised how many of them are willing to work with you.