What Is a Maxed-Out Credit Card and What Can You Do?
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Summary:
A maxed-out credit card is a credit card on which you’ve reached or exceeded your credit limit. When you max out a credit card, it can lead to a lower credit score, APR increases, higher minimum payments, and declined transactions. After you’ve maxed out your card, you should stop using all of your credit cards and reduce your budget so you can start working toward lowering your debt. To avoid maxing out your credit card, regularly monitor your credit card usage, know the credit limits and necessary minimum payments on each of your cards, and make a conscious effort to keep your purchases below your total available credit.
It’s possible you’ve gotten into some sort of credit card trouble before. It happens to even the most financially well-prepared people. A few too many purchases, and suddenly your monthly statement is sky-high, and you don’t know how to begin paying it off.
Perhaps those purchases even exceeded your credit limit, and suddenly your credit card has been maxed out. Not only can this lead to declined transactions, but it can also drop your credit score, raise your interest rates, and increase your minimum payments. That said, there are ways to recover from maxing out a credit card, and you don’t even have to be a financial genius to dig yourself out of this hole.
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When is a credit card “maxed out”?
When you “max out” a credit card, you’ve reached or even exceeded your credit limit. For example, if your credit limit is $1,000 and you reach a credit card balance of $1,000, this means your credit card is maxed out. And if you miss a payment, the interest could push your credit card balance beyond $1,000, creating additional issues such as over-limit fees.
Additionally, when your credit card is maxed out, your credit card issuer may not allow you to make further charges until you pay down the balance and open up your available credit again. This means your credit card is virtually unusable until you get your balance back under your credit limit.
What happens when my credit card is maxed out?
A maxed-out credit card can create issues for your overall credit. These issues may include a drop in your credit score, increases in APR, higher minimum payments, and declined transactions.
Lower credit score
Going over the limit on your credit card affects your credit utilization ratio, which is the percentage of how much of your available credit you’re using. It also accounts for almost one-third of your credit score. The higher your credit utilization ratio, the more your credit score suffers.
APR increases
When your credit score drops and your credit utilization ratio is high, credit card issuers will worry that you’re going through financial hardship. If you’ve had your credit card for over a year, this could lead to an increase in your annual percentage rate (APR).
Higher minimum payments
Your minimum payment is usually based on a percentage of your balance. Therefore, if you have a high balance, your minimum payment will increase as well.
Declined transactions
A card issuer might decline your transaction if you attempt to make a purchase after you’ve reached your credit limit. This could be especially inconvenient if you need to use your card for an emergency expense.
Pro Tip
Some credit cards will let you go over your credit limit. However, it’s not recommended, as doing so will push you further into debt. You’ll also be charged an over-limit fee.
What can I do when my credit card is maxed out?
If you have a maxed-out credit card, you’ll want to start paying down your credit card balance as soon as possible. You have practically no purchasing power with a maxed-out card, and the longer you leave it maxed out, the higher your risk of going even further over your credit limit.
There are two ways to correct a maxed-out credit card. The first method — and the one that will ensure you don’t go further into debt — is to pay down as much of the balance as you can. If you can afford it, paying in full is ideal; however, even paying a significant chunk of your balance will bring your balance below your credit limit, sparing you from over-limit fees.
You can also ask your credit card issuer for a credit limit increase, which would give you more room to spend with your credit card. You can usually request a bigger credit limit by calling your credit card issuer, though some card issuers will let you submit a credit limit increase request via your online account.
Aside from the above strategies, there are also steps you can take to ensure you come out of your credit card debt in the best possible financial shape.
Stop using your credit cards
If you’ve maxed out one credit card, you might want to stop using all your credit cards completely. Even if you have low balances on your other credit cards, using them at all would only add to your overall debt.
Some people even attempt to get a new credit card during the early stages of paying off the balance on their maxed-out card; however, this is usually not recommended. The hard inquiry on your credit will take points off your credit score, and you also might overspend with your new card.
Pro Tip
If you’re using your credit cards to survive month to month, it might be worth speaking with a credit counselor for help with your personal finances.
Choose a debt reduction strategy
If you still have an excellent credit score, a balance transfer credit card is a good option to help put a dent in your credit card debt. Try to get a 0% APR for a set period of time, you can find cards that offer intro rates ranging from 6 to 21 months, which gives you a chance to pay off (or at least pay down) your balance during an interest-free period. The key to this strategy is to figure out what your monthly payment should be, so you have a balance of zero before your new APR kicks in.
If your credit score isn’t high enough to qualify for a balance transfer credit card, you may want to consider getting a debt consolidation loan. These loans collect many of your debts into one loan payment, thereby reducing the number of monthly payments you need to make. You may even find these offers for lower interest rates than you are currently paying.
Reduce your budget
Reducing your budget and spending can help you save money, which you can put toward paying off your credit card debt by meeting at least your minimum payment. This is sometimes referred to as a “needs vs. wants” approach. Needs include expenses such as rent payments and cell phone service. Wants, such as gym memberships and dining out, can probably be cut back.
How can I avoid maxing out my credit card?
Maxing out your credit card, while unfortunate, is avoidable. There are several steps you can take to help decrease your chances of maxing out your card and going into credit card debt. For example, by regularly monitoring your credit card usage, you can stay aware of your credit card balances and credit limit. You can check your balance at any time online, via a mobile app, or by calling your credit card issuer’s customer service line.
Additionally, knowing the credit limits and necessary minimum payments on each of your cards, as well as making a conscious effort to keep the total of your purchases below your available credit, can help you avoid maxing out your card. Once your account balance starts to approach the credit limit, you should stop using your credit card for new purchases until you are able to meet your minimum payment and pay down your balance.
How do maxed-out credit cards affect my credit score?
Reaching or exceeding the limit on your credit card affects your credit utilization ratio. This ratio is a percentage of how much of your available credit you’re using, and it accounts for almost one-third of your credit score. Experts suggest keeping your overall credit utilization ratio below 30%. The lower your credit utilization ratio, the better it is for your credit score.
That said, if you’re able to pay off your credit card balance before your credit card issuer reports your account to the credit bureaus, which is usually on your account statement closing date, the maxed-out balance won’t be reported and therefore won’t show up on your credit report or be reflected in your credit score.
FAQ
What does having a “maxed-out credit card” mean?
A “maxed-out credit card” means that you’ve reached or exceeded the credit limit on your card. Your credit limit is the maximum amount you’re allowed to spend in a given statement period. Once you’ve maxed out your card, you may not be able to use it to make payments until you’ve paid down your credit card debt and put your balance back under your credit limit.
Can you recover from a maxed-out credit card?
Yes, you can recover from maxing out your credit card. Two immediate strategies you can use are to start paying down your debt by meeting your minimum payments and to stop using your credit cards altogether so you don’t accrue more debt.
If you still have an excellent credit score, a balance transfer credit card may help reduce your debt. If your credit score isn’t high enough, you can also consider a debt consolidation loan, which collects many of your debts into one loan payment, thereby simplifying how many payments you have to make.
Does having a maxed-out credit card hurt your credit score?
Yes, having a maxed-out credit card does hurt your credit score. When your card is maxed out, it raises your credit utilization ratio, which accounts for one-third of your credit score. The lower your credit utilization ratio, the better your credit score.
How much money is a maxed-out credit card?
The amount of money it takes to max out a credit card depends on your credit limit. For example, if your credit limit is $3,000, you can accumulate a balance up to that amount on that credit card. The moment you hit or exceed your credit limit, your card is maxed out.
How long does it take to recover from a maxed-out credit card?
The amount of time it takes to recover from a maxed-out credit card is different for everybody. For example, if you are only a few dollars over your credit limit, you will likely be able to pay that amount down quickly. However, if you are a few thousand dollars over your credit limit, that will probably take you more time to pay off. Additionally, if you have to take out a debt consolidation loan, that will be even more debt you need to pay off.
Should I max out my credit card every month?
No, you should never max out your credit card. Maxing out a credit card could leave you in crushing debt that can be difficult to climb out of. Although there are resources for people who have maxed out their credit cards, it’s better that you avoid putting yourself in this hole in the first place. You should only use your credit card to make purchases you know you’ll be able to pay back.
Key Takeaways
- A maxed-out credit card is a credit card on which you’ve reached or exceeded your credit limit.
- A maxed-out card can lead to a lower credit score, APR increases, higher minimum payments, and declined transactions.
- To avoid maxing out your credit card, regularly monitor your credit card usage, know the credit limits and necessary minimum payments on each of your cards, and make a conscious effort to keep your purchases below your total available credit.
- Once you’ve maxed out your credit card, you’ll want to stop using all of your credit cards, start working toward lowering your debt, and reduce your budget so you have extra money to pay down your balance.
- Exceeding the limit on your credit card affects your credit utilization ratio. This is the percentage of your available credit that you’re using, and it accounts for almost one-third of your credit score. A lower ratio makes for a better credit score.
If you are struggling to make your credit card payments, it may be time to consider more aggressive debt relief strategies. Check out SuperMoney’s picks for the best debt relief companies that can help you start on the road to financial recovery.
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