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Credit cards can be dangerous for consumers because they allow such seamless access to debt. This is evident in the fact that over half of adults in the United States have maxed out their cards.
For those unfamiliar with this, here’s what happens when you max out a credit card.
Your Credit Utilization Will Skyrocket
Credit utilization is one of the important metrics that goes into determining your credit score. It’s simply the relationship between your credit limit and the amount of credit you’re currently using.
Most experts recommend that you keep your credit utilization ratio at or below 30 percent.
When you’ve maxed out your credit card, your credit utilization for that card will be at 100 percent. This won’t look good to the credit reporting agencies, which will assume you’re not making headway in paying back that debt.
Your Card Might Get Cancelled
It’s not unheard of for credit card companies to cancel or close accounts that have hit their credit max. The lender might just make the assumption you’re not in a good financial place and are unlikely to pay back any more money you lend to them.
In this scenario, they might just decide it’s not worth it to keep lending money. This is more likely to happen if you’re consistently having a balance near the credit limit.
You need to remember that the credit card company closing your account doesn’t mean you don’t have to repay the debt. You still owe that money, you’re just not able to keep using credit on that card as you pay it down.
You Can’t Make More Purchases Until You Pay Down Some Balanc… Read More
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