Why you shouldn't max out your credit card

Why you shouldn’t max out your credit card

Last updated: 08 March 2022

Hands up if you know the exact amount of credit available on your credit card right now.

If your hands are actually reaching for your bank app to find out, then you certainly aren’t alone. After almost two years of discovering home based hobbies and online shopping for everything, it seems Australians are keen to hit the shops, pop on their dancing shoes and head out and about!


Tapping your credit card or using mobile payments can make purchases, nights out and holidays a breeze, but it’s also easy to spend more than you think and accidentally max out your credit card. So what happens if you do max out your credit card?


# You can’t use your card until you make a repayment

Let’s start with the obvious, once you max out your credit card you can no longer use the credit card for purchases. Any new transactions you make could be declined, including automatic payments or direct debits. The sooner you pay off your credit card, the sooner the balance is brought back under the limit for you to use it again. It’s worth remembering that there can be a delay between money leaving your bank account and your credit card balance reducing.


# Fees and charges may apply

Depending on your credit card provider, there may be fees or charges for going over your credit card limit. If you have automatic payments coming off your credit card – for things like streaming services or cloud storage – and if these payments are declined, you could be hit with additional fees from these companies as well.  


# You might struggle to make the repayments

Your minimum repayment is based on the amount of your credit card balance and as your balance increases, so does your minimum monthly repayment. If you haven’t been smashing down that credit card balance, you could find yourself struggling to pay off the entire amount you’ve spent, plus the accrued interest charges.


# It could hurt your credit score

As part of Comprehensive Credit Reporting, your repayment history information is reported on your credit report. With a higher minimum repayment (as a result of maxing out your card), chances of incurring a late payment or defaulting are more likely and could indicate to lenders that you’re in financial stress, which in turn can affect your ability to obtain more credit in the future.


If you’re getting close to maxing out your credit card or just want to ensure you stay under the limit, here are a few things you can do:


  1. Use it wisely
    Limit your credit card spending as much as possible – take it out of your wallet or remove it from your digital wallet so you don’t get tempted. If you want to take it one step further, set up a transaction account for your budgeted spending amount and ONLY use that account for your daily expenses.
  2. Track your spends
    Check your card balance regularly by setting customised account alerts. Some providers offer text messaging or push notification via their apps to help you track spend.
  3. Create a plan
    Budgeting is the key to understanding your spending habits. Identify and cut back on the unnecessary variable expenses (like takeaway and impulse purchases) as these expenses could snowball your debt further.



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