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6 Dangers of Carrying a High Balance on Your Credit Card

July 18, 2017

A credit card can at once be both a blessing and a curse. While it offers the convenience of cashless transactions, a cardholder must also bear the responsibility of using the piece of plastic in a careful and thrifty manner. With a credit card in hand, many consumers are tempted to spend more than they can pay off. Meanwhile, there are others who frequently max out their cards without realizing the negative effects of such actions.

Let’s say you own a single credit card that has a maximum limit of $2,000. In this case, you may feel that it’s okay to put a $1,500 purchase on it, especially if you can afford it pay it off. However, that would take your credit utilization ratio to 75%. The general rule to be followed with credit cards is that your balance should not surpass 30% of your credit limit. Ideally, you should ensure that it remains below 10% at all times. Here’s what can happen if you get into the habit of carrying a high balance on your credit card.

  1. Your Credit Score Could Take a Hit: Your credit utilization ratio indicates the ratio of your card balance to your credit limit. The higher this percentage is, the more your score is likely to suffer. According to FICO, a consumer with a 680 credit score could lose between 10 to 30 points by maxing out his credit card; an individual with a 780 score may lose between 25 to 45 points.

  2. You’ll Have to Pay High Interest Charges: This is because monthly finance charges depend on your card balance as well as interest rate – so the greater your balance, the more you’ll have to dish out as interest.

  3. You May Have a Higher Minimum Payment: Your minimum payment is generally calculated as a percentage of your balance, say 2% to 3% of the amount. Naturally, the greater the balance you carry, the higher will be the minimum amount that you’re asked to pay. While this may not be a problem if you’re flush with funds, in times of scarcity it may actually worsen your predicament.

  4. You May Not Qualify for Other Loans: Whenever you apply for a loan, say a mortgage or even another credit card, the lender evaluates the amount of debt that you already have. Carrying too much debt could send off a signal that you won’t be able to shoulder additional responsibility; thus the institution may turn down your application for a new loan.

  5. You Could Get into Debt: Consistently carrying a high balance could lead to a situation where you have borrowed more than you can pay off. So in order to avoid getting into debt, its best to keep your balance low.

  6. You May Not Have Enough Available Credit: One of the boons of a credit card is that you can use it to borrow money for various purposes, like funding your business or for emergencies such as hospitalization. But if you’re already carrying a high balance, you may not be able to use your card for that particular need.

Of course, there may be situations where even though your credit utilization ratio is low, your authorized limit is just not high enough to allow you to use your credit card for your desired purpose. In such cases, you can request that your card company increase your limit. Alternatively, you can approach our team at Fund&Grow – our organization helps individuals and small businesses get up to $250,000 through creative credit card financing. And what’s more – this loan is not only unsecured but also interest-free! So if you know anyone with this sort of a requirement, have them call us at (800) 996-0270 and we will do our best to help them out.

I take tremendous pride in building positive and lasting relationships in my businesses and personal life. Every member of my team is committed to helping our clients get the maximum amount of funding possible and achieve their highest growth potential.

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