By Pascale Hansen

Many people are surprised to find that their credit score isn't considered excellent (above 760), even if they diligently pay off their credit card balances in full each month. What they often overlook is that consistently maxing out their credit limit before making payments can seriously harm their credit score.

When you frequently max out your credit card, you create a high credit utilization ratio, which is one of the key factors influencing your credit score. A high utilization ratio signals to lenders that you may be over-reliant on credit, making it more challenging to qualify for loans with favorable interest rates in the future.

In addition, maintaining high balances can lead to a debt spiral, especially given the steep interest rates associated with credit cards. This situation can quickly become overwhelming, with a significant portion of your income going toward paying off credit card debt, thus leaving little room for other important financial goals, such as saving for retirement or building an opportunity fund (which includes cash for any emergencies).

Instead of maxing out your credit card every month, it’s essential to keep your credit utilization ratio below 30%. This not only helps protect your credit score but also fosters better financial health by ensuring you don’t fall into a cycle of debt.

If you find yourself struggling with uncontrollable debt—meaning you lack a clear plan for when it will be paid off—make addressing this issue your top financial priority. Consider creating a cash flow plan and/or utilizing debt repayment strategies to regain control of your finances.

Remember, financial well-being is not just about paying off debts; it's about maintaining a balance that allows you to achieve both short-term and long-term financial goals without jeopardizing your credit health.

Pascale Hansen is the Founder, CEO, and Financial Strategist at Zada.

#PersonalFinance #CreditCardManagement #CreditScore #DebtAwareness #FinancialWellness