Learn About Credit

When and how to use credit responsibly and avoid debt traps.

3 Ways People Destroy Their Credit (Part 2 of 3)

2. Maxed out credit cards

If you run your credit to the limit, it will ruin your credit rating. It is always surprising how many people think they have good credit because they pay all of their bills on time, yet their credit rating is horrible because they have maxed out all of their credit cards. The people who build credit rating systems are smart. They know that having maxed out credit cards means that you are one missed paycheque or emergency away from not being able to pay your debts. Although you may have never missed a payment, if your credit cards are maxed out, you are a huge risk and your credit rating will reflect this. A maxed out credit card is defined as someone routinely using 75% or more of their credit limit. Going over your limit is even worse.

If you go on holidays and max out a credit card but have lots of other things reporting on your credit bureau with low balances, your credit rating will probably be fine. But if all or almost all of your credit cards and lines of credit are near their limits, then your credit rating will look poor if you try to apply for credit. The good news is that as you pay your credit cards down to reasonable levels, your credit score will quickly spring back if everything else on your credit report is fine.

This all holds true too if you max out expense cards, business credit cards in your personal name or the credit card that you like to collect points on.

The Rest of the Article:

Part 1 (Late Payments)

Part 3 (Not Paying Your Debts or Declaring Bankruptcy)

 

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