What happens if I use 90% of my credit card?

The Impact of Maxing Out Your Credit Card

Utilizing a significant portion of your credit card’s available balance can have a negative impact on your credit score, even if you pay the bill in full.

Understanding Credit Utilization

Credit utilization refers to the amount of credit you are currently using compared to your total credit limit. High credit utilization indicates to potential lenders that you may be overextending yourself financially, which can increase their perceived risk.

Impact on Credit Score

FICO, the most widely used credit scoring model, heavily factors credit utilization into its calculations. According to FICO, balances above 30% of your total credit limit can damage your score. Maxing out your credit card, even if paid in full, can temporarily push your credit utilization to 100%, which will significantly lower your score.

Consequences of a Low Credit Score

A low credit score can have several negative consequences, including:

• Difficulty obtaining loans or credit cards
• Higher interest rates on loans and credit cards
• Reduced credit limits
• Denial of rental or mortgage applications

Managing Credit Utilization

To avoid the negative effects of high credit utilization, it is crucial to monitor your credit card usage and aim to keep your balances below 30% of your total credit limit. If you find yourself close to maxing out your credit cards, consider making extra payments or requesting a credit limit increase.

Additional Considerations

In addition to credit utilization, other factors that affect your credit score include payment history, length of credit history, and number of new credit inquiries. By maintaining a high utilization ratio, you may damage these other aspects of your credit profile.

Conclusion

Maxing out your credit card, even if paid in full, is not advisable as it can negatively impact your credit score. By managing your credit utilization wisely and keeping your balances low, you can improve your credit score and access better financial opportunities.