Card limits and why you can’t spend all your money whenever you want to

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Everyone knows that credit cards come with a credit limit, the maximum amount of money you can charge on the card. However, what’s not as widely known, is that credit card issuers don’t intend for you to max out your credit card by charging up to the credit limit. As you come closer to your credit limit, it can start to have negative effects on your credit score.  Love it or not, much depends on the almighty credit score – from buying a home to getting a good rate on insurance and even employment for some professions.

A credit card is meant to be used as a tool. But when misused, it can cause damage and allow you to sink into debt and hurt your ability to borrow money cheaply in the future. A bad stretch of credit behavior can plague your pocketbook for years.

A credit card is an unsecured loan. If you don’t pay off your card every month, you must pay interest on the amount you owe. Most cards these days charge double-digit interest rates, so carrying a balance from month to month can add up to HUGE interest fees.  Remember, your minimum payment will rise as your balance rises. It may start out at $35 a month but quickly rise to several hundred dollars a month.

The rule of thumb is to never spend more than 20% – 30% of your available credit balance. If you go over that 30%, your credit score could take a hit. Maxed out credit card balances could also prevent you from getting additional lines of credits or loans. When you apply for a credit card or loan, the creditor will run your credit report and look at your available credit. If your credit card balances are too high, banks take that as you already have more debt than you can handle.

Many people get a credit card for emergencies, so they have access to credit when they need it. But when you max out a card, you are left with not only no backup emergency plan, but you’ve added extra stress to your finances. Regardless of your credit limit, you should never max out your credit card unless it’s an absolute emergency.

Need help paying down those credit card balances, check out our blog on how to pay down a balance when paying the balance in full isn’t an option: CLICK HERE TO READ.

susan dickinson

Susan Dickinson
Vice President, Lakeville Manager

Author: Susan Dickinson

Susan joined Litchfield Bancorp in 2004 as a branch manager in the Lakeville Office. She has spent her career in banking with over 33 years of experience. In 2007, she was promoted to retail banking officer and attended Leadership Northwest, which is a 1-year program of the Northwest Connecticut’s Chamber of Commerce. In 2010 she was promoted to assistant vice president. She is a graduate of the Connecticut School of Finance and Management’s two-year program on banking theory, practices, and procedures. Susan donates countless hours to the local community. She became and is still the president of the Tri-State Chamber in 2009, which has a main goal of connecting commerce with community and doing what we can to help and support the local businesses. She was voted in as a director of the Salisbury Rotary Club in 2008 and in 2009 voted in as a director of the Salisbury Rotary Foundation; she currently holds the positions of treasurer for the Rotary Club and Foundation, “Service above self”. Susan was awarded the “Paul Harris” Fellow award on May14, 2013. Susan and her husband, Edward resides in Falls Village, CT. Susan also received a “leader in banking award” this past year, 2015.