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Reasons Why You Should Not Max Out Your Credit Card

Credit cards are meant to provide convenience and perks, but surpassing the credit limit costs a lot of hassles and problems in the long run.

In a credit card survey by WalletHub, it was found that 86 million or 1 in 3 Americans fear the possibility that their credit card will be maxed out when making a large purchase.

According to a report by NerdWallet, the standard household carries a balance of $6,929 monthly, with $1,140 in annual interest. The Balance stated that the annual percentage rate (APR) on credit card purchases is 21.28%. 

Credit cards can make your life more convenient until you surpass your credit line

With those numbers stated, it is important to limit your finances in order to avoid a more expensive burden. Here are more reasons why you should not max out your credit card:

It Lowers Your Credit Score

In general, good credit utilization is below 30%. This ratio shows the equivalent of credits that you are using up. If your credit utilization is high, your credit score becomes lower. Hurting your credit score can have several negative impacts such as higher APR, inability to get new credit, and even closure of your account.

Penalty Rate Will be Triggered

Higher credit triggers a higher penalty rate. Issuers do have the right to increase the interest rate of your card if your credit score is poor, which makes it a problem.

Fortunately, there is a chance for you to mend the situation and get a lower penalty rate if you continuously pay your credit payment on-time after the late payment.

Minimum Monthly Payment Becomes Higher

As your debt grows, your card’s minimum payment increases along with it. You will need to pay more than what you have expected, which will definitely hurt your budget.

If you make a habit of maxing out your credit card, your credit score becomes lower

Balance Could Take Years to Repay

The burden of having a high debt is serious, and it has huge consequences in the long run. Going over your credit limit is subject to interest rates and penalties, making it difficult even to pay down your credit. Especially if you are making a minimum monthly paycheck, your credit could pile up and the burden of paying off your debt could be dragged for years.

Lenders Will Not Like It

After maxing out your credit card and hurting your credit score, it will be treated as a red flag when applying for another loan, such as a car loan or mortgage. Upon reviewing your credit score, the banks will see that you still have more debt to pay off.

This will indicate that you have difficulty managing your finances. Lenders will become skeptical about your application and will consider you a large risk. Since your credit card balance is too high, your loan application may be denied.

It Will No Longer Be Useful

Do not push your card to its limit, for you won’t be able to use your credit in the case of an emergency. Worst case scenario, your credit card issuer might shut down your credit card anytime if your profile changes significantly.

You may not have enough credit allowance when an emergency comes up

Every credit card user has an allotted amount of maximum credit, depending on the issuer and your salary. There have been plenty of horror stories involving maxed out credit cards, but there are ways to prevent this from happening.

Set up account alerts to be reminded of the status of your credit. Reminders that pop up when you are about to hit a certain threshold in your credit can save you from financial trouble. Stop creating more debt than you can handle, and be mindful of how you handle your credit card purchases will prevent you from having serious problems as aforementioned.

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