Maxed-Out Credit Card: What It Means, How To Fix It And How To Avoid It

If you're really close to or at your credit limit, you have what's known as a maxed-out credit card. While it can happen, a maxed-out credit card can have some negative effects on your financial health. There’s no need to worry just yet, but it is important to understand whether it is bad to max out your credit card, and what might happen if you go over your credit limit.

What Is A Maxed-Out Credit Card?

If one of your credit cards is really close or at your credit limit, you have a maxed-out card. Depending on the issuer, you may even be able to exceed your credit limit. Your credit limit can be maxed out whether you make several purchases within the span of a few weeks, or over a lengthier period of time, especially if you carry a balance on your credit card between billing cycles.

For example, if you have a $4,500 credit limit and you have $4,500 in purchases on your card, then you have a maxed-out credit card. Or, if you carried a $3,000 balance over from the previous statement period and put a $1,500 purchase in the card the next month, then that’s also case of a maxed-out card. This example does not account for any interest accrued for carrying a balance over from one statement to the next.

Can You Go Over Your Credit Limit?

Some credit card issuers may allow you to go slightly over your credit limit. Think of this as a buffer amount, typically for cardholders who have proven to be responsible by making on-time payments. However, you'll probably be subject to over credit limit fees.

Another way you can also go over your credit limit is through other types of fees your credit card company charges. For example, you are almost at your credit limit but were late making the minimum payment. Your credit card company adds on a late penalty fee, which would put the amount you owe over your credit limit. You’ll also be responsible for any additional interest charges.

Is It Bad To Max Out Your Credit Card?

Life happens, and maxing out your credit card is not the end of the world. However, there are potential negative consequences that could include a drop in your credit score and extra fees. If it continues to be an issue, your budget could be in jeopardy. Plus, it could mean that you don’t have as much wiggle room to use your credit cards, especially if you’ve been using them regularly as part of your spending plan. In the next section, we’ll review some other potential consequences of maxing out your credit card.

What Happens If You Go Over Your Credit Card Limit?

There are several possible consequences of going over your credit limit, including:

• Your card may get declined. If you try to use your credit card and you’ve already spent more than your credit limit, it will most likely get declined. Even if you’re only close to it, your purchase could still get denied if the amount will take you over the credit limit.
• Your credit utilization ratio may increase. Your credit utilization ratio is the percentage of the available credit limit you use. The higher the credit utilization ratio, the more it could negatively affect your score, as it may appear you’re relying too heavily on credit cards. If your card is maxed out, your credit utilization for that particular card is at 100%. In most cases, a credit utilization of more than 30% could have negative consequences.
• Your credit score may drop. For those who are currently looking to take out another loan (like buying a new car or a home), a drop in your credit score — likely due to your high credit utilization — could make it harder. Lenders may not readily approve you for their products.
• Your interest rate may increase. Some credit card issuers can decide that you’re a higher-risk borrower, and increase your APR (annual percentage rate) to offset that risk. This means that any balance you carry statement to statement could result in higher interest payments.
• Your minimum payment may increase. Some credit card issuers may increase the minimum payment you may owe if you max out your credit card. For example, if your minimum payment used to be $25, your card issuer could increase it to $40. The increase will depend on the card issuer.

What To Do If You Max Out Your Credit Card

Some actions you can take if you max out your credit card include paying down your balance as quickly as possible and pausing use on the card immediately.

Stop Using The Maxed-Out Card

It’s important to stop using the maxed-out credit card since you want to bring down that balance as much as possible. Not using this credit card can also mean you can avoid further late fees and higher interest payments. Take this time to consider other options, such as using cash. Yes, you can use any other credit card you may have, but if you’re worried you’ll max those out too, then it may be better to err on the side of caution.

Pay Down Your Balance

Try to make as many payments toward your card balance as possible. If you can afford to, consider making more than the minimum payment to get the balance down even faster. Other ways you can also get some breathing room includes getting a balance transfer with a card at a lower interest rate (or a 0% introductory rate if possible), getting a debt consolidation loan and finding ways to increase your income.

How To Avoid Maxing Out Your Credit Card

In most cases, you can avoid maxing out your credit card. The most common tactics mentioned typically have to do with regularly monitoring your transactions and being aware of when you’re near your credit limit.

• Use a budgeting app. Budgeting apps like Rocket Money^SM can help you track your credit card transactions. By linking all your accounts and displaying them in one place, it could be easier for you to see when you’re at or close to your credit limit.
• Keep up with card payments. You could also consider apps that send you periodic reminders to either check your credit card balance, or even when it’s near your credit limit. Considering automatic payments for the credit card’s minimum payment could help bring the balance down a little bit.
• Request a credit limit increase. Getting approved for a credit limit increase may give you some breathing room, though it will be more difficult if the account is already maxed out. Before increasing your credit limit, carefully consider whether you’ll feel tempted to max out the card with the new credit card limit.
• Consider the underlying reason you maxed out your credit card. Fixing any problem means getting to the reason why it’s happening in the first place. Perhaps you’re going through a tough time emotionally and are prone to impulse spending, lost your job and are struggling to keep up with bills, or even see your credit card as “free money.” Taking the time to tackle the reasons you max out your credit card could help you maintain a more consistent budget in the long run.

The Bottom Line

Maxing out your credit card means you’re close to or right at your credit limit and could face negative consequences such as a drop in your credit score, higher interest payments and an increase in your minimum monthly payment. To help you stay on top of your spending habits and avoid maxing out your credit card, use available tools such as Rocket Money to track all your accounts in one place. It’s free to download the app.