Why maxing out your credit card can hurt your credit score

Maxing out harms credit score

Credit cards are powerful financial tools, but they can also backfire if overused. One of the biggest mistakes cardholders make is maxing out their credit limit - or using nearly all of it each month. Even if you pay your bill on time, a high utilization ratio can still hurt your credit score and signal risk to lenders.

How credit utilisation affects your score

Credit bureaus in India, such as CIBIL and Experian, closely track your credit utilisation ratio — the percentage of your available limit that you use. Ideally, you should keep it below 30 percent. If your limit is Rs 1 lakh and you regularly spend Rs 80,000, it tells lenders you may be over-reliant on credit. This can reduce your credit score even if you’re making full payments.

Why it matters to lenders

When you max out your card, lenders see it as a sign of financial stress or poor discipline. It suggests that you might struggle to manage additional credit if needed. This can affect your chances of getting new loans or result in higher interest rates. A high utilisation ratio also leaves you vulnerable to interest charges if you ever miss the due date by even a day.

How to manage your usage smartly

If you’re consistently spending close to your limit, consider asking your bank for a higher credit limit — but continue using the same amount. This automatically lowers your utilisation ratio. You can also split expenses across two cards or make multiple bill payments within the same billing cycle to keep balances low.

Paying on time isn’t enough

Many cardholders believe that as long as they pay their dues before the deadline, their score stays safe. But credit bureaus often record utilisation data before your payment clears. This means your score can still drop temporarily, even if you never default.

The takeaway

Your credit card limit is not a spending target — it’s a boundary. Staying well below that limit shows lenders you can handle credit responsibly, which helps your score grow. Maxing out your card, even occasionally, can send the opposite signal. Keep your usage modest, pay in full, and your credit score will thank you for it.