What is a Maxed-Out Credit Card?
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Key points about: maxing out your credit card
Maxing out a credit card means that the balance has reached the credit limit and there’s no more available credit.
Maxed-out credit cards can negatively impact your credit score.
Making credit card payments, even the minimum payment, can help your credit score.
A maxed-out credit card is a credit card with a balance equal to the credit limit. So, if the credit limit on your credit card is $3,000 and you’ve spent that amount without paying anything toward the balance, you have a maxed-out credit card.
Understanding why you have a maxed-out credit card is key to using a credit card responsibly. Carrying a very large balance is a sign to review your current budget, expenses, credit cards, and financial accounts to ensure that the financial tools you lean on to manage your money are still a good match for you.
Read on to understand what happens if you go over your credit limit and how to manage a maxed-out credit card.
Can you go over your credit limit?
Depending on your credit card issuer, you may be able to exceed your credit limit. Some credit card companies may offer cardmembers a buffer if they spend more than their credit limit. In that case, however, you could owe over-limit fees.
Some credit card issuers may not allow you to charge more than your credit limit. Others may charge you an overlimit fee if you do charge more than your credit limit.
If you’re a Discover cardmember, you can log in to the Account Center to view your available credit limit.
Should you go over your credit limit?
Even if your card issuer allows it, you should avoid going over your credit limit. Maxing out your credit card could hurt your credit score, leave you with over-limit fees, and even put your credit card account at risk.
Why maxing out matters
The amount of your credit card balances relative to your available credit (known as credit utilization ratio) helps creditors determine the risk they assume. For this reason, if you’ve hit (or surpassed) a credit card limit, it may cause the issuers of your other credit cards to lower your credit line—even if you haven’t maxed out those other credit cards.
By maxing out your credit card, you could:
Negatively impact your credit score by increasing your credit utilization
Make it harder to take out a personal loan, home loan, or get approved for a new credit card
Put yourself at risk of going over your credit limit
Make it tough to pay off your balance
Increase your minimum payment
Limit your available credit
It may be a good idea to call the credit card company if you find yourself in this situation, especially if you’ve never missed a payment before or if you’ve had a life-changing event such as a medical emergency. The credit card company may be able to work with you on the payment schedules and fees. You can also ask the card issuer if they will consider offering a credit limit increase.
But to ensure this doesn’t happen again, review why you maxed out your cards. Then, you can take steps to mitigate those reasons and avoid hitting the credit card limit on multiple credit cards.
How going over your credit limit affects your credit score
Your credit utilization ratio accounts for 30% of your FICO Credit Score1. To maintain a good credit score, you should try to use only a small portion of your overall available credit. When you go over your credit limit, your credit utilization ratio likely increases substantially, which could affect your credit score.
Maxing out your credit cards might also make your monthly payments more difficult to manage. Your payment history makes up about 35% of your credit score, so missing payments or not paying the minimum payment could have a meaningful impact. To stay on top of your credit score, you should avoid maxing out your credit cards.
Determine why you maxed out your card
Here are some common scenarios that may contribute to maxing out a credit card.
An unexpected medical bill or home repair, or even just traveling and putting all of your expenses on one credit card can push even the most dedicated saver to their financial limits, especially if you’ve already run through the money in your savings account. Don’t panic when a crisis or large, unexpected bill hits. The important thing now is to consider how to start paying down the credit card debt.
This one may be harder to stop since it’s more likely to have become a longer-term habit. Perhaps you don’t have the cash to fund your essential monthly expenses. Or maybe you keep spending beyond your budget on items or experiences, be they splurges or so-called must-haves. The goal is to reassess if you want to avoid a bad credit score.
If you’re trying to build up your credit and/or you have a secured credit card, your credit limit may be only a few hundred dollars. In this case, a balance equal to your credit limit may not necessarily indicate that you’re overspending. Still, it does present an opportunity to learn the ins and outs of credit and work on improving your financial habits. After consecutively paying off the entire balance on the credit card statement, it’s possible that you can request a higher limit from the card provider.
Take steps to fix it
Thankfully, many reasons you maxed out a credit card can be addressed.
- Stop using the card temporarily or put a hold on your card through the card issuer.
- Pay as much you can to reduce the balance—and the amount of money you could pay in interest rate charges—each month. It’s a good idea to avoid taking out a cash advance to make the payment, as this could create another series of financial issues.
- Sign up for automated alerts. Many credit card companies provide the option to enroll in automated email or text alerts so you can proactively monitor how purchases impact your balance in the future. You can also check if the credit card issuer can alert you if your credit card balance hits a certain amount.
- Revisit your budget and stick to it. If your monthly expenses closely match (or exceed) your monthly income, consider how you can cut costs or generate an additional source of income. If you can only make the minimum credit card payment, you’ll need to reconsider your spending habits.
- Use cash. If you have maxed-out credit cards because you struggle to resist impulse purchases, make it impossible to veer from your budget: use only cash when you shop. Leave credit cards at home and for emergencies only.
- Establish an emergency savings account. A typical financial rule of thumb is to build a balance of three to 12 months of living expenses. This will help you avoid using a credit card or hitting your credit limit in an emergency.
- Prove to creditors that you can manage a higher credit limit by paying down the balance on time, not applying for new credit, keeping the card open, and your credit utilization low.
Eventually, your issuer may be willing to increase your credit limit, or other issuers may offer you cards with a higher limit because you’ve proven a strong understanding of how to use credit.
Find the card that’s right for you
One important step to avoiding too much credit card debt may be ensuring that your credit card, or any future cards, truly supports your needs.
Credit line amounts, annual fees, interest rates, late fees, and the ability to earn credit card rewards vary from one secured credit card to the next. As you learn what features secured credit cards offer, make a list to prioritize which are the most important to you.
Also, ask secured card issuers what steps are needed to turn, or graduate, a secured card into an unsecured card, which are regular credit cards that don’t require a security deposit.
Suppose you have an average credit score and get approved for a new credit card. In that case, your credit limit may be lower than cards offered to someone with excellent credit. Still, you may find plenty of options with no annual fee, reasonable interest rates, and rewards.
Ideally, getting the best credit card for you and using it responsibly will put you on the road to help your credit score.
And hopefully, you’ve followed a path that may keep you out of debt and away from maxing out your cards.
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