Credit cards help us to overcome financial shortages and meet daily needs. A credit card is a blessing but only when used efficiently. You must have heard about credit card users who got caught in the pool of debt. It is because they might not know how to use a credit card efficiently. As a responsible credit card user, you should know the maximum limit and how to use it. Even the best credit card in India comes with a maximum spending limit. Read on to know the meaning of maxing out your credit card.
Understanding the Concept of Maxing Out a Credit Card
Every credit card comes with a pre-defined credit limit set by the credit card issuer. The credit limit isn’t the same for all credit card users in the country. The credit limit is pre-decided by the issuer based on numerous factors. Your credit score, credit history, repayment capacity, and creditworthiness decide your credit limit. Someone with a bad credit score might not get a hefty credit limit on their credit limit. Once you receive a credit card with a pre-defined limit, you are eligible to use it as per your requirement.
The credit limit refers to the amount available for usage on a credit card. You can use a portion of the available credit limit or the entire credit limit. When someone uses the entire credit limit available on the credit card, it is referred to as maxing out the credit card. Once you have maxed out your credit card, you cannot use your credit card for any other reason. No amount will be left on your credit card after it is maxed out.
Maxing out your credit card does not imply that you can never use your credit card. The credit limit offered by the credit card issuer is renewed after every billing cycle. However, the condition for renewal of the credit limit is that the outstanding dues need to be paid. If you have maxed out your credit card, you need to pay the outstanding dues before the deadline. By doing so, your credit limit will again be renewed for the next billing cycle.
Is It Recommended to Max Out a Credit Card?
One should know that maxing out your credit card isn’t a healthy financial habit. The basic reason to not max out your credit card is that you will not have further purchasing powers. During any financial emergency, you cannot use your credit card if it is maxed out. Credit card issuers also advise customers to not max out their credit cards. The maximum credit card limit in India should only be used under unavoidable financial circumstances.
Credit card users should also know that maxing out a credit card will harm their credit score. Your credit score depends on many factors including the credit utilization ratio. The credit utilization rate is the percentage of credit limit used from the total available limit. Almost all credit card issuers use credit utilization rates for credit rating processes. When you max out your credit card, the credit utilization ratio will be 100%.
According to credit card experts, the credit utilization ratio shouldn’t be more than 30%. For example, consider your available credit limit as INR 10,000. In such a case, you should not use more than INR 3,000 on your credit card for each billing cycle. By doing so, your credit limit will increase, and you will possess a healthy credit utilization rate. If you max out your credit card more than once, it can seriously hamper your credit score.
What to do After Maxing Out my Credit Card?
Let’s say, you have maxed out your credit card due to a financial emergency. Well, one should try to pay off the outstanding dues as quickly as possible. Even if you aren’t able to pay the full balance, pay the maximum amount as per your capacity. When you do so, your credit limit will be restored for the next billing cycle. Also, you may escape a bad credit score and credit utilization rate.
Another way of dealing with a maxed-out credit card is asking the issuer to increase your credit limit. If the credit card issuer increases your credit limit, your credit utilization rate will automatically come down. However, there is no surety that the credit card issuer will honor your request to increase the credit limit after you have maxed out the available limit. It may depend on your relations and credit history with the issuer. Credit card longevity also plays a role in increasing your credit limit.
Ideally, one should never max out their credit card limit. It helps you maintain a good credit score and credit report over time. You can always choose a credit card with a higher limit to avoid a maxed-out scenario. Choose an issuer that offers the maximum credit card limit in India!