This is What a Maxed-Out Credit Card Does to Your Credit Score
Tue, Mar 14, 2023 7:09 AM
NEW YORK - March 14, 2023 - ( Newswire.com )
Credello: You never want to get in a position where you max out one of your credit cards if you can avoid it. However, you might find yourself in this situation at some point in your life. If it happens, you may wonder what this scenario does to your credit score.
Credit score inquiries can always tell you exactly what your score is at any time. You can do that to get an up-to-the-minute score, but you should also know what a maxed-out card does to your score in a more general sense. We'll discuss that right now.
What Is a Maxed-Out Credit Card?
Most credit cards have limits on them. It's possible to get a credit card with no limit, but most people don't want those. They feel the temptation might be too great to spend beyond their means.
A maxed-out credit card is one where you have spent the entire amount that you're capable of on that card. For instance, you might have a $10,000 limit on the card. If you try paying for something and get a message that the card is maxed out, that means you have exhausted that entire $10,000. You must pay some of it back before you can utilize that card again.
What Is Your Credit Score?
Your credit score is a particular number that is assigned to you based on several factors having to do with your credit. When someone talks about your credit score, they usually mean your FICO score. There are also the three major credit monitoring companies, Experian, TransUnion, and Equifax.
Your FICO score ranges from 300 up to 850. The higher yours is, the better it is, and the more financial opportunities you have.
What Happens to Your Score with a Maxed-Out Card?
If you max out a credit card, that usually causes your credit score to lower. That is because, with a maxed-out credit card, you're sending a strong signal to the credit monitoring agencies that you have reached or are close to reaching your debt ceiling.
Your debt ceiling is how much you can borrow. You may have also heard this term used in relation to the federal government.
Part of how credit monitoring agencies devise your score is through your credit utilization rate. This is how much total credit you have available versus how much you are using. Credit utilization makes up quite a bit of your total score, 30%, in fact. Only your payment history matters more.
How to Come Back from a Maxed-Out Credit Card
Let's say you max out a credit card, and you see your credit score lower because of it. You probably won't be happy about that, but there is no reason to panic.
Remember that any time your score lowers, you can raise it again. There are some financial best practices you can follow that will bring your score back up. Your score is constantly in flux.
In the case of a maxed-out credit card, the easiest way to raise your score is to pay off as much of the money you owe on the card as you can, as quickly as you can. When you do that, you are not using as much of your credit potential. Before long, your score should reflect that and start to rise.
Paying off the money on your maxed-out card also helps your payment history, which you might recall is another huge part of what makes up your credit score. You should have this in mind when you max out a credit card. Perhaps you're causing your credit score to lower temporarily, but there is no reason why you can't bring it back up again through some responsible financial habits.
Credello is a financial tech company offering a personal finance tool that simplifies financial decisions through personalized, on-demand recommendations — so users can borrow, save, or invest with confidence.
Credello believes that finding the right financial product should be as easy and interactive as online shopping and we are on a mission to make that possible. For more information, please visit https://www.credello.com.
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Original Source: This is What a Maxed-Out Credit Card Does to Your Credit Score