Here's What Happens When You Max Out Your Credit Card Limit

When you max out a credit card, you borrow up to the card's credit limit. For example, if you borrow $7,998 on a card that has a credit limit of $8,000, then you've all but maxed it out.

Sometimes, you can't help but max out credit cards. For instance, if the card has a low credit limit -- say $1,000 -- then it might be difficult to stay below the limit. The same is true when you're consolidating debt. You might transfer $5,000 of debt to a 0% APR card that has a $5,000 credit limit. The card allows you to pay down debt without paying high interest, even if the maxed out limit doesn't allow you to spend. 

In most situations, however, a maxed out credit card can become a serious liability and cause damage to your credit score, personal finances, and mental health. Let's take a quick look at what you can expect when you've maxed out a card.  

Transactions may be declined

A maxed out credit card has little or no funds available to borrow. As such, stores will likely decline your card if you try to use it to buy new things. 

But some credit cards will let you continue borrowing money even after you've hit the credit limits. This is called “over-limit protection.” Not all credit cards offer over-limit protection and those that do require you to opt-in to the protection beforehand. You might also pay an over-limit protection fee when you exceed your limit. 

If your card isn't opted-in to over-limit protection, your transaction will be declined. Your card will be practically useless, until you start paying off the balance. 

You could undermine your credit score

Maxed out credit cards could hurt your credit score by roughly 30 to 50 points. 

A huge chunk (30%) of your credit score is made up of what's called credit utilization. In simple terms, this is a measure of how much credit you're using versus how much credit is at your disposal. 

For instance, let's say you have two credit cards with a total of $15,000 in revolving credit. If you max out one card at $8,000, your credit utilization would be 53%. A good credit utilization is below 30%. When credit rating bureaus, like FICO, see you've used more than half your available credit, they will lower your score as a red flag to credit card companies. 

Minimum payments might increase 

For large unpaid balances, credit card companies often calculate minimum payments by a fixed percentage, like 2%. Here's the problem -- as your balance approaches the maximum, your minimum might grow with it. 

As an example, let's say your credit card provider uses 2% to calculate minimum payments and your card has a limit of $8,000. For a $4,000 balance, your minimum would be $80. But if you maxed out the card at $8,000, your minimum would jump to $160. 

Your monthly payment can increase in another way: penalty APRs. If you fail to pay your monthly minimum for 60 days, your credit card provider will replace your current APR with a higher interest rate. This will increase how much you owe and can make it difficult to get out of debt. 

What to do if you max out a credit card  

Maxing out a credit card doesn't spell the end of your personal finances. But it can put you in a tough spot, especially if your card has a high interest rate. 

If you're having trouble paying down a maxed out card, consider getting a 0% APR credit card. These cards come with an introductory period, usually six to 21 billing cycles, during which you'll pay zero interest on unpaid balances. You can transfer a balance from your current card to the 0% APR card, then focus your efforts on paying down the balance. 

You could also consolidate credit card debt with a personal loan. Depending on your credit score, a personal loan might offer you a lower interest rate than credit cards. This would work well if you have multiple maxed out cards and want to lower the total interest you pay. 

Finally, you could also apply for credit card hardship programs. These programs are designed to help you control your finances during hard times, like unexpected deaths, medical emergencies, or job losses. The program might come with some consequences -- like limiting your access to credit -- so be sure you research the repercussions before applying.