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Why is it bad to charge up to your credit limit?*
I recently heard that charging close to your credit limit every month (e.g. charging $950 on a card with a $1,000 limit) can be bad for your credit score. I frequently do this, as I prefer debit/credit cards over cash. I just recently read this, and I don't understand why it is bad.
I am a good credit holder. In the 13 months I have had my card, I have only had one late payment (a day late), and I have had my credit limit increased multiple times. Because I always pay on time, I don't understand how charging near my max every month could be bad for my score.
Answers:
1) it does not always work well
2) it does not only a high balance hurts
3) Carrying balances of more than 30% of your limit hurts your score. Pay off the balance and your score rebounds. It isn't utilizing most of your limit; it's carrying balances. If you run up the card and pay the balance in full every month, you are likely to get your limit increased. By the way, having "only had one late payment" in 13 months does NOT make you a good card holder. One day late is like being a little bit pregnant -- you're still late. And having a late payment in such a short period is definitely not something to brag about.
4) A large part of your credit score comes from your credit "utilization." Low utilization is good and high utilization is bad. When you max out a credit card (even if you pay it off in full every month) you are using all of your available credit, which is bad for your score. It's better to put your charges on two cards where you only use 30% or less of your credit limit on each card, than to consistently max out one card. Here's more information about credit utilization and how to raise your credit score: http://moneygirl.quickanddirtytips.com/canceling-credit-cards.aspx http://moneygirl.quickanddirtytips.com/raise-credit-score-fast.aspx.
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