Do Credit Scores Ratings Go Down If I Max Out Credit Cards?

Credit1 year ago
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Making sure to maintain a healthy credit scores rating is essential if you are planning on applying for a mortgage, line of credit, or new credit card. But the ins and outs of what can affect your score can seem overwhelming at times. If you have been diligently working towards improving your credit scores rating, you can sometimes be blindsided to see your score has dropped for seemingly no foreseeable reason.

If you have been wondering "Why would my credit score go down?", now of the things to check is if you have recently maxed out a credit card.

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Is it Bad to Max Out a Credit Card?

In terms of credit scores rating, then yes, it is bad to max out a credit card. And if you don't take quick action to lower your credit card balance you could soon see your credit scores begin to drop! Not only that your minimum payments may increase and you'll have to deal with the inconvenience of future transactions being declined until you rectify the situation.


Why Would My Credit Score Go Down if I Max out Credit Cards?

If you have maxed out a credit card with every intention of paying back the balance, you may be feeling a little hard done by if your credit score rating had dipped as a result. But the answer to "Why would my credit score go down when I max out my credit card?" is simply answered in one phrase - Credit Utilization Ratio.

Your credit utilization ratio is the amount of credit that you have available and the amount of credit you are currently using. It is expressed as a percentage and the higher percentage you have the more your credit score is likely to suffer! You should aim for a credit utilization of about 20%-30% to ensure your credit card balance doesn't affect your credit score.

If you have maxed out credit cards, your credit utilization ratio percentage will obviously be far past this. And this ratio is one of the largest factors in determining your overall credit score.

Therefore, if you have a maxed out credit card it is important to pay back the balance as quickly as possible to avoid a nasty shock the next time you are checking your credit reports. As long as you remain on track with payments in the future, any credit scores rating dips should begin to balance out to reflect your recent steady credit history.

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What Are The Other Effects of a Maxed Out Credit Card?

When it comes to answering, "Is it bad to max out a credit card?", a negative effector on your credit score range isn't the only thing to worry about.

There are also other reasons you want to avoid a maxed out credit card if you can. Not only will your credit scores rating dip, but you could also face other consequences such as minimum payment increases and future credit card transactions being declined.


A Maxed Out Credit Card Can Lead to Increased Minimum Payments

Depending on your credit card issuer, you may have to deal with a higher minimum payment on your account after you have maxed out a credit card.

A minimum payment calculation will usually include data about your current balance. the higher the outstanding balance, the higher your minimum payment on your account. To discover if this is true for your credit card, you can check the terms and conditions of your card or contact the issuer directly to make inquiries.

If your minimum payment is increased as a result of a maxed out credit card it will result in a longer-term financial adjustment unless you start paying off a loan on your card as quickly as possible.


Your Future Transactions May Be Declined

If you max out your card, then not only will it affect your score, but you will have less room for further spending. Depending on your card issuer, you may have further payments declined, or you may be able to exceed your limit up to a further set amount.

No matter what happens, if you max out your card you will simply be increasing your debt. Rather than further stretch your credit spending, your first course of action is to sit down and make a reasonable and realistic plan on how to pay off your debts steadily.


How to Start Paying Off a Maxed-Out Credit Card?

If you are struggling to pay off your credit card debt, then there are some strategies you can consider trying to improve your balance and rating on credit scoring models.

Consider Transferring Your Debt to a Card with a more Favorable APR

If you have been able to maintain a low credit utilization ratio and high credit score up to this point, you may be able to transfer your debt from a maxed out credit card to a new card issuer with better rates.

You may be able to find a credit card with no annual fee and an introductory 0% interest rate, which will help you to ensure you are not going into further debt as you start to pay off your outstanding amount. However, you should also factor in that most cards will charge a balance transfer fee when you begin the process.


Contact a Professional Agency to Come Up With a Debt Management Plan

If you have maxed out your credit cards and are struggling to stem the tide of debt you find yourself finding, it may be prudent to contact a credit counseling company. You may be able to access a debt management plan which will consolidate all your debt into one monthly payment which you can pay off over three to five years.

The closer you get to paying off your debt and the steadier your finances, the more your credit limit and score should start to improve.


Apply for a Credit Card Hardship Program

If emergency health care costs, sudden unemployment, or other unexpected changes have led you to max out credit cards, you can apply for a credit card hardship program. This action could lead your card issuer to ease the interest payments on fees on your debt.

However, you should be aware that as a result your issuer may close a credit card or freeze your account to prevent further spending.


Summary - Do Credit Scores Ratings Go Down If I Max Out Credit Cards?

So, as you can see the answer to "Why would my credit score go down if I max out credit cards?", concerns your Credit Utilization Ratio. The more credit you are using, the more your credit scores rating will suffer.

Therefore, if you are looking to improve your credit rating for the future, you can see that it is bad to max out a credit card or exceed your credit limit. if you do max out credit cards, you need to make sure to pay off your debts quickly and ensure it doesn't become a regular habit.

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