What Happens When You Use Your Full Credit Limit of Credit Card?

Credit card comes with a specific credit limit assigned to you with that card. It is based on various factors including your creditworthiness and income. But then, this credit card limit has a purpose.

When a person uses the entire credit limit assigned, he or she is referred to have maxed out the credit card. This is usually not a good or profitable choice made. In, it then has various consequences, which serve as a burden on your financial condition.

Consequences of Using Full Credit Limit of Credit Card

Here is what you might have to face upon maxing out the card:

Credit Utilization Ratio

CUR is indirectly proportional to your credit score. You need a low CUR to ensure a good, high score. And a good, low CUR requires that you limit the card usage up to 30% of the credit utilisation limit offered. CUR shows how much credit assigned to you has been used by you from a card.

The resulting credit score is no good for your financial life and goals.

High Interests

Having maxed out the Credit card, you also need to make appropriate, timely (re)payments. A large amount spent, it may not be easy for you to timely repay the loan with the chosen interest. This will accrue further interest on the balance, and with time, the high interest rates would have led to a huge overall sum to be paid to the lender/issuer of the card.

Late Payment Penalties

The financial burden further rises as you fail to make the payment by the due date. This is due to the charging of late payment penalties, levied when you do not make the minimum payment till the due date also.

Future Loans and Credits

With maxed out credit card and having low score, your chances of getting loans or credit cards approved in the future get too low. This can be problematic when you are in a financial crisis but are refused any loans. This is because banks and the lenders of loans and credit cards require borrowers who will be able to make the complete repayment in time. Because your past credit activities would signal a poor financial behaviour, they would not choose to take the risk.

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Your Credit Score and Credit Profile

Credit scores, credit profiles, creditworthiness, credit reports; they are all inter-related. As the score rises, so does the creditworthiness of the borrower. Your credit profile gets better, so does your credit report.

Now, having used your credit card/s to its/their entirety, all this would not be so good to receive the otherwise possible benefits. Your credit history will signal you as poor creditworthy.

How Much of Your Credit Limit Should You Really Use?

As discussed above, the ideal credit utilization rate is 30%. That means, that experts advise all borrowers to use up to 30% of your credit limit for sound management of all your finances. Having done so indicates responsible spending with the borrowed money.

Can One Use Credit Card Beyond the Credit Limit?

Surprising, but yes, one can be allowed to use the card not just till the entire credit limit, but even beyond the entirety.

This privilege is for the borrowers who have consistently shown a responsible financial behaviour. When the lender sees that you have always fully paid in time, never defaulted, carry a good credit score/history/profile/report and also have a good reputation and relation with the bank/lender, they choose to permit 'over limit' use of the card.

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Moreover, even the credit card limit can be raised when you know you have a salary hike, a higher creditworthiness than when you applied for the card. You can speak with the card issuer, discuss the reasons and needs and thus convince them to raise this limit to higher levels based on your financial growth and stability.

Sometimes, the limit is increased by the bank even without you asking for it, but upon seeing your responsible behavior. It is up to you then to avail it or not.

Moreover, such developments will usually not charge borrower anything extra, except for some cases where a specific charge may be levied.

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