What Happens When You Max Out a Credit Card?

Overwhelmed man holding up phone and credit card.

If you know anything about credit cards, it's that you probably want to avoid maxing one out. But what does that mean and what are the consequences? Let's break it all down.

What does it mean to max out a credit card?

Maxing out a credit card refers to reaching the credit limit assigned to that particular card. The credit limit is the maximum amount of money you're allowed to borrow on that card. When you max out a credit card, it means you've used up the entire available credit limit.

For example, if your credit card has a limit of $1,000 and your balance (the total of both the charges you've made and any interest fees that have accrued) hits $1,000 or more, your card is maxed out.

A card that's maxed out typically can't be used for more charges until the balance drops back down below the limit. And that only happens if you make the necessary payments.

Not being able to use the card isn't the only consequence of exceeding your credit limit, though.

What happens if you max out a credit card?

Depending on the terms of your account, there are typically a few different unpleasant outcomes for maxing out a credit card.

Overlimit fees

Most credit cards come with a financial penalty for going over the credit limit. These are usually called overlimit fees, and while the specifics may vary, most creditors will charge you an overlimit fee for every month that your account remains over the credit limit.

If you're struggling to make payments, those added charges will only add to your balance, making it even harder to get back below the limit.

Interest charges

You don't need to be over your credit limit to start accruing interest charges. Carrying any balance at all will cost you, but given that interest is charged as a percentage of what you've borrowed, the higher the balance the bigger the interest charges.

Credit score impact

The closer you are to reaching or exceeding your credit limit, the worse it is for your credit score. That's because your credit utilization ratio, which is the ratio of your credit card balances to your credit limits, is a crucial factor in determining your credit score.

The more of your total available credit you're currently the using, the higher the risk of extending you more credit (hence the lower credit score). Your best bet is to keep your overall credit utilization ratio below 30% if possible.

Credit limit reduction

Credit card issuers really don't want you to go over your credit limit. After all, theoretically, that credit limit is the absolute most they're comfortable letting you spend on the account. That's why the punishments for exceeding that limit can be harsh.

One potential repercussion: they may actually reduce your credit limit. That's something that would be spelled out in your agreement, but it's a real possibility, especially as away to force you to use less credit going forward.

Of course, the lower limit may make life harder for you. It may extend the amount of time you spend overlimit, thus increasing the amount of fees you're charged. And it may make improving your credit utilization ratio even harder.

How do you fix a maxed out credit card? 

While the best action is to keep your balances in check and stay as far away from your credit limit as you can, things happen. There are unexpected expenses or our spending just gets out of hand.

Dealing with a maxed-out credit card takes time and effort, but it is possible to get yourself back into good standing.

Stop using the card

This is probably out of your hands, because creditors generally never let you make new charges on an account that's over the limit. But in any case, take that card out of rotation until the balance is at least back down to a reasonable amount.

Create a budget that supports debt repayment

Your top priority will always be safety and wellbeing (rent, mortgage, food, electricity, etc.). But now you've got to make more room for debt repayment if you want to get a maxed out account under control.

Develop a realistic budget that prioritizes essential expenses and allocates funds to debt repayment. Identify areas where you can cut discretionary spending to free up money for debt payments.

Talk to the creditor

Contact your credit card issuer and ask about options for lower interest rates or a repayment plan. Some issuers may be willing to work with you to establish a more manageable payment arrangement if they feel it will increase your odds of repaying your debt.

Explore debt repayment options

Depending on your overall levels of debt and your current credit score, you may have more than a few options when dealing with credit card debt. Between debt consolidation loans, balance transfers, and nonprofit debt management plans, there's likely an option out there that fits your goals and your circumstances.

Work with a debt counselor

If you're really struggling or just need a little help understanding your options, we offer free credit counseling, which is a great way to work with an expert and get unbiased advice on the best path for you and your debt. Is bankruptcy a good option for you? Or what about debt settlement? We can help you explore all of the available options.

Continue making payments

Even if all you can afford is the minimum monthly payment, make sure you're keeping your account current. Adding late fees and dinging your credit report with missed payments will only make a tough situation tougher.

And again, if you need more help, our trained experts are available 24/7, online and over the phone. 

Tagged in Debt strategies, Build your credit score

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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