5 Reasons Why You Should Not Max Out Your Credit Card
Credit cards are an inevitable part of life no matter how much you try to shake them off. It can be a savior or a demolisher depending on the way it is used. Most individuals discourage the use of credit cards due the fear of getting into debts. However credit cards are just the instruments, not the reason behind a debt crisis. The improper utilization of credit card is the key factor leading to your financial crisis. The end result of which can be either to opt for debt settlement or bankruptcy. The important fact that is often missed out is that the card has a limit. You get into problems of debts and penalties only when you max out your credit card.
Using your credit card to the optimum level can get you into severe debt crisis. The article deals with the top 5 reasons why you should not max out on your credit cards. Consider these to have a clear overview:
- Credit score drops: Your credit score has a direct relation to the credit used on your cards. 30% of your score is directly dependent on your usage of the available credit. Credit utilization is basically the ratio of credit card balances to credit limits. If your credit usage is higher your credit score will be hampered to a greater extent. Do not use your credit cards to the maximum limit. Either you max out your single credit card or many; all of it adds negative markings on your credit score.
- Negative impact on Lenders: If you want to get a loan from an individual lender or a bank, you need to show a good credit report. When you apply for a credit card or loan, the bank or the lender will take a look at your available credit card balance. If the account shows high credit card balance, it is an indication that you have incurred more debts that you can possible afford to pay back. This gives the lenders a negative impression of your credit report which may lead to denial of your credit loan applications.
- Increased possibility of exceeding your credit limit: If you keep your balances below your credit limit, your chances of exceeding your credit limit is reduced. However if finance charges are included there can be a possibility of exceeding your finances. If your balance crosses your credit limit, you would face difficulty in regaining it as an over-limit fee will be charged each month. Try keeping your credits as low as possible if you want to avoid an over-limit fee.
- Difficulty in repaying balance: Depending on your credit limit, if you have maxed out on your credit card balance, it would take a longer time to repay. If you are paying only the minimum balance the time limit for repayment increases. You can pay the balance in full but for that you have to let go of the cash. This can be problematic as the payment due date arrives your repayment get difficult.
- Default rate gets triggered: The interest rate on your credit card terms can be raised by the credit card companies if you max out your credit cards and default on it. The highest interest your credit card company can charge is 30%. If you have acquired a high interest along with a high balance it can turn problematic for your credit card repayment plan. If you max out your credit card balance, your interest rate increases. This can increase the rate of your default on payments.
- Unmanageable Credit Card Balances: It is always better to keep your credit card balances below 10% of your credit limit. It helps in the managing the credit card in a better way and also gives a good impression to the lenders about your credit score. You should try to keep a check on your credit limit by restricting your credit card purchases so you can avoid maxing out your credit cards.
Author Bio: Kevin Craig is a financial writer associated with Oak View Law Group. He has helped many debt burden people to get out of debt by helping them with debt settlement & proper financial advice.