This is the worst time to maximize your credit cards
Generally, it is a bad idea to maximize your credit cards. If you have a credit card with a credit limit of $ 5,000 and load $ 4,900 or $ 5,000 on the card, you have reached the maximum.
While maximizing your cards is never a good thing, there is a time when it can be particularly damaging.
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Never maximize your cards in this situation
If you’re applying for a large loan, like a mortgage, personal loan, or car loan, do everything you can to avoid approaching your credit limit.
There are a few big reasons to maximize your cards, so this is particularly bad news. You may be denied your loan and be unable to buy that house or car or get your funds because maxing out your cards lowers your credit score. If you use more than 30% of your credit limit, it hurts your score. And the closer you get to the maximum of your cards, the greater the damage. If your credit score is lower because you overcharged your cards, you also might not qualify with as many lenders.
Lenders compare your debt amount and your monthly debt payments to your income. This is called your debt to income ratio. If you’ve run out of cards, you have more debt and a higher monthly payment. If your debt-to-income ratio is too high, lenders may deny you money.
Even though lenders won’t turn down your loan just because of max cards, they may view you as a riskier borrower due to a higher debt-to-income ratio and lower credit score. Since you borrow a lot of money for years or even decades, even if they only raise your interest rate slightly, you could end up with thousands or tens of thousands of dollars in mortgage fees. additional interest.
And, of course, if you are maxing out your cards, it’s harder to make payments on your cards. and the new loan you take out, which increases your risk of default.
Because of all of these drawbacks, avoid approaching your credit limit if a large loan is in your immediate future.