Half of all consumers have used up a credit card, but is that a problem? The answer might surprise you
Have you ever used a credit card to the max? According to statistics, there is about a 50-50 chance that the answer is yes.
This may sound alarming, especially since using all of your available credit is widely viewed as a big financial mistake. Experts advise using as little of your credit as possible, and therefore maximizing a card seems to be the definition of overspending.
But believe it or not, there are times when a max credit card isn’t a big deal. In fact, I used one of my cards to the max last month and it had no impact on my credit rating. Here’s what you need to know about a credit card’s maximum and when it’s, and isn’t, a problem.
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How many consumers have used a credit card at most?
According to our study of credit card habits in the United States, almost 52% of consumers have maxed out a credit card. To clarify, this means that they have used their entire credit limit on a card at least once.
Age seemed to play a role in the likelihood of a consumer maximizing a card, but it wasn’t the much-maligned millennials who were at the bottom of the pack. Here are the figures on the number of people in each generation who have used a credit card at most:
- Millennials: 50.3%
- Generation X: 58.8%
- Baby boomers: 39.3%
The Potential Ramifications of Your Credit Card Maximum
There are several ways in which the maximum of a credit card could impact your life. Here are the most common negative ramifications.
Credit card debt. It’s hardly ever a good idea to keep a balance on a credit card (unless the card has an introductory APR of 0%). The more you charge, the more likely it is that you will fail to pay your balance in full by the due date – and therefore pay interest. If you max out a card with a high credit limit, you could be paying off that balance for months or years to come.
A lower credit score. 30% of your FICO® score calculation is based on your credit usage, which is the ratio of your credit card balances to your total available credit. If your total available credit is $ 10,000 and you owe a total of $ 2,000, then your credit utilization rate is 20%. If that number gets too high – above about 30% – it can drastically lower your credit score. One credit card at maximum can result in very high credit usage, although this depends on the number of credit cards you have and the total limit you have.
Not being able to use your card. Once you’ve used up a credit card, you can’t use it again until you’ve paid off the balance. This might be inconvenient for you as you will need to find another payment method at the moment. And if you use one of the best credit cards to earn money or travel rewards, you will forfeit those rewards until you can use the card again.
When a max credit card isn’t a problem
A max credit card doesn’t always mean you’re doing something wrong. If you can pay off the card in full without paying interest, and if you can keep your credit usage low because you have multiple credit cards, then you don’t have to worry about maximizing one card.
Why would you want to max out a card, though? Here are some of the most common reasons:
I found myself in the last scenario. I had to meet minimum spending to earn a signup bonus on a new card, but the card issuer gave me a credit limit of only $ 2,000. I ended up maximizing the card to earn the bonus. Since this was only one of over a dozen credit cards I have, maxing out that card barely changed my credit usage and my credit score stayed the same.
The key here is to have enough credit available so that a card’s maximum does not push your credit usage beyond 30%. And of course, you still have to pay off the balance before you get hit by interest charges.
Stay safe with your credit
In most situations, you should try to avoid maxing out your credit cards. Your credit score could take a hit, and it’s easy to end up with too much credit card debt.
At the same time, it is not always necessary to avoid maximizing a credit card. There are occasional exceptions where you may have a valid reason to use an entire line of credit.