What happens to your credit score when you go over your established credit limits? A reader, Andrew, had this question:
Will being over the limit on my credit cards affect my credit score if I am still making the minimum payments?
Thanks for your question Andrew.
Going over your limit on any credit account will still hurt your credit score, even though you are continuing to make payments.
Here’s the breakdown:
You FICO scores are made up of several things, and they are supposed to be sort of a “snapshot in time” that shows how well you have used your credit recently, and throughout the last ten years.
One of the things FICO takes into account is how much of your available credit you are using. How close you are to your limits accounts for 30% of your credit score.
So, if you max out your credit cards, and only may the minimum payments, your credit score will definitely drop. Fast.
In fact, aside from late payments, using too much of your available credit damages your credit score faster than just about anything else.
So, what can you do?
Stop charging, immediately. Make your payments as large as possible on your credit accounts until you get your total balances down to around 20- 30% of your available credit.
If you can use less than 20% of your available credit, it looks really good to FICO, and your credit scores actually go up.
If you can avoid it, never, ever go over your set credit limits. It will always hurt you more than it will help you.
One piece of advice though: If you do go over your established credit limits, make sure that you call your credit card company. Ask them to remove their over-the-limit fee and make a payment with them.
Most credit card companies will remove your over limit fees without giving you too much trouble. Especially if it doesn’t happen frequently. There is no reason to pay those sorts of fees when simply asking will usually be enough to get them removed and save the money.
Thanks again for your question!
We also had an excellent question from a reader, Charles:
What is the best way to get a higher credit score, when you have a lot of credit card debt. Pay off one card, or pay down on each one? Should I pay off one card or take the money and pay down multiple cards. Which will up my credit score?
Good question Charles. Both methods will raise your credit score. That is because FICO takes them both into account: Your entire amount of available credit, and the amount of available credit you have per account.
My advice is to go account by account, and pay off your debt – not to split the money between multiple accounts. It doesn’t matter too much how you go about paying down your debt, as long as you do.
I’m going to side with Liz Pulliam Weston on this issue and say this “Pay down the card that is closest to it’s credit limit first.” That is the quickest way to raise your credit score.
Once you have that credit card paid down under 50%, (or even better, under 30%) move on to the next credit card that is close to the limit.
Now, that being said, there is one other thing you can do that will help you raise your credit score.
You can ask your lenders to increase your limits.
A limit increase will look the same as a very large payment to FICO. All of a sudden you have more credit freed up, so it appears that you are using less of your available credit than you were before they increased your limit.
Just be sure not to charge anything extra on the cards that get the limit increases. Those increases are the padding that effectively puts you ahead a few months as far as your credit score is concerned, and your score will go up faster.
As a last piece of advice, do not close your credit accounts out once they are paid off. That will dramatically lower your total available credit, and it will hurt your credit score.
It is best to avoid closing paid off credit accounts, even if you never use them again.
Thanks for your question!
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