You Might Not Realize What Happens When You Max Out Your Credit Card

Believe it or not, maxing out your credit card isn't a bad thing -- if you pay off the full balance right away. However, failing to pay off a maxed-out credit card immediately can cause you huge problems.

We all know your card may be declined if you try to make a purchase that would put you over the spending limit. That can be embarrassing, and it can force you to use cash or another credit card (which racks up more debt) to cover your expenses.

But there are other, bigger consequences you might not know about.

1. You could go over your spending limit

Some cards allow you to spend more than your credit limit -- and this is even worse than having a purchase declined.

Cards that allow over-limit spending require you to opt into it; if you don't, then you cannot exceed your spending limit. But if you've opted in, and you go over your limit, then you may be charged an over-limit penalty. This fee is usually $25 to $35, but it can be as high as the amount by which you exceeded your limit.

You may also be hit with penalty APRs -- the highest possible interest rate your credit card can charge. Even if you start making on-time payments right away, this penalty APR may last for up to six months.

Need help paying off a large credit card balance? Check out our list of the best balance transfer credit cards and see if you could get a 0% intro APR for 12 months or longer.

2. You could be forced to pay a higher minimum -- or pay sooner

Your minimum payment and due date are not set in stone. If you have a maxed-out card, then the issuer may demand a higher minimum payment and/or ask you to make a payment immediately.

3. Your credit limit may be decreased

If you regularly max out your credit card without paying off the full balance, then your card issuer may decide that you can't handle your current spending limit. Your credit limit may be decreased at any time, and this can hurt your credit score.

Your credit utilization ratio is a major factor in your credit score. It's the amount you owe divided by your total credit limit -- and the lower it is, the better.

If you have a $10,000 credit limit and an outstanding balance of $6,000, then your credit utilization ratio is 60%. If your credit limit is lowered to $8,000, then your credit utilization will jump to 75%. This will almost immediately hurt your credit score.

4. Your credit score could plummet

Most credit card issuers report info about your account -- including your balance -- to the credit bureaus on your statement closing date. If your credit card is maxed out at that time, then your credit utilization ratio (for that card, at least) will be 100%. And that's very bad for your score.

A sudden spike in your credit utilization ratio can cause your credit score to drop by double digits.

What to do if your credit card is maxed out

Consider a maxed-out credit card your No. 1 financial priority. The APR you'll pay on your outstanding balance will eat up your income and put you behind on every financial goal. If you find yourself with a maxed-out card, take the following steps.

Stop using the card immediately

Take it out of your wallet and lock it away. Remove your card info from apps and websites like Amazon. Make sure it's not your automatic payment option for recurring payments.

Cut every unnecessary expense

Look through your payment history for this card and any other card you may have. Odds are there are several expenses you can reduce or get rid of altogether. You may even be paying for services and subscriptions you'd completely forgotten about.

Look for a balance transfer card

Balance transfer cards allow you to move your existing credit card balances to a new card, which charges 0% APR for a limited time -- typically 12 to 21 months. For that period, you won't rack up additional interest charges, so there will be more room in your budget to pay down your balance.

You'll typically have to pay a fee of 3% to 5% of the amount transferred when you open the card. And once the 0% APR period ends, a high interest rate will be applied to any outstanding balance. Do your best to pay it off entirely before that happens.

Ask your credit card company for help

Finally, it doesn't hurt to ask your credit card issuer for a little breathing room. It's possible they'll help you out by waiving some fees or lowering your interest rate -- especially if you're having financial difficulties that are outside your control.

Having a maxed-out credit card isn't the end of the line. With the proper steps and attention to the issue, you'll be able to get back on the right track with your credit.