The idea of maxing out a credit card might bring to mind an image of someone with arms loaded full of shopping bags at the mall. However, reasons for maxing out a credit card aren’t limited to irresponsible spending. You might find yourself nearing your credit limit if your credit card has a low limit. Even if your credit limit is less than $1000, it will still impact your credit score if you’re using too high of a percentage of the total limit. Why? It increases your debt-to-credit ratio – the amount of credit you’re using, compared to the amount of credit extended to you. Typically, you should keep this below 30%, meaning you’re using less than 30% of the total amount of credit available.
When you are over 120 days late in paying a bill, it is usually sent to collections. This means that the original creditor has given the debt to an agency to collect. Delinquent credit card debt, unpaid utility bills, mortgages, auto loans, and student loans are some debts that can be passed on to a collection agency. After a debt is turned over to a collection agency, it can take some time to appear on a credit report. When it does show up, it will certainly have a negative impact on your credit score – and remain on your credit report for 7 years.
Some credit cards are designed with a specific user in mind, like a business owner. These might have additional requirements or fees, but they also may have specific benefits or rewards that help you specifically. For example, a business credit card might have an unusually high credit limit, better purchase or fraud protection, or higher credit card rewards at office supply stores.