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My card's maxed out. How do I get more credit?

Eva Norlyk Smith Ph.D.

December 3, 2013

QDear Eva,

I have a card with a $5,000 limit, and it's always near maxed out. I make the payments I can afford, which is always about $300 paid twice per month when I get my paychecks, but then I charge it back up again. I'd like to get more cards, but will this hurt me? I've heard it's hard to get new cards when your card is always at the max. If that's true, what do you think I should do? Ideally, I'd like to get more cards in the future, so that I can spread my charges out. — Anya

AHi Anya,

Before we dive into your question, please join me in a little experiment. I'd like you to take a nice, crisp $100 bill, hold it out over your kitchen sink and light it on fire. And while you're at it, go ahead and do that every single month going forward.Ask Eva

“Why would I ever do something that stupid?” you might ask.

Well, unfortunately, this is practically what you've been doing every single month by keeping high balances on your credit card.

Here's an important little detail about credit cards that many people overlook: There is a 21-day grace period on purchases, but only if the balance is paid off in full every month. If you carry balances over from month to month, the interest clock starts ticking from day one each time you make a charge.

If the interest on your credit card is around 20 percent, as is common, it amounts to $83 in interest charges every single month on a $5,000 balance.

How will you know exactly how much interest you've been paying? Read your credit card statements. The interest charged each month is listed clearly on each statement. However, many people pay attention only to what the monthly payment is, so unless you specifically look for the interest paid, it can be easy to overlook.

Keeping your credit card maxed out hurts you in other ways. High credit card balances can seriously lower your credit score. To build a good credit score, credit card balances should be kept at 10 percent to 20 percent of the credit limit, and never over 30 percent. In your case, with a $5,000 credit limit, it means that your card balance should be around $500 to $1,000 each month, which is probably also around what you can comfortably pay off in full each month.

You have essentially been treating your card like a debit card. That is a very expensive way to use a credit card. If your main goal is to have the convenience of putting your paycheck on plastic so you don't have to carry around cash, get a debit card, or, if you don't have a bank account, a prepaid card. With a prepaid card, you simply load money on to the card and spend it — exactly as you've been doing, except you won't ever have to pay interest since you're simply spending your own money. Once that's gone, you can't buy anything else.

If you want to have access to credit on those — hopefully rare — occasions where you need it, plus the benefits of steadily building your credit score, then having one or several credit cards is the way to go. But do yourself a favor and read up on the basics of how to build credit, so you can use those credit cards to your advantage, rather than spending your hard-earned money to make charitable contributions to your bank.

Before you apply for another card, you need to get rid of that high balance. It is hurting your credit score (which will make issuers hesitant to give you another one), and I bet that you'll agree that you don't earn enough money to pay nearly $1,000 a year in interest charges to your bank.

To get the 0 percent interest grace period on your purchases again, you have to first get that balance all the way down to zero. To keep the interest-free grace period, continue to pay the balance off in full every month after that. So for now, put that credit card in a drawer so you don't add any more charges, and then focus on paying down the balance as fast as you possibly can. I like that you're making payments twice monthly, as soon as you get your paycheck. Keep it up.

If you do decide to get another card after you pay off your current one, keep those good habits. You say you want to “spread your charges out” across cards, but, based on your past credit habits, I worry that you intend to use that new line of credit to spend more. Instead of spreading debt around, make an effort to pay off the balance on your new card (and your old card) in full each month. If you must temporarily carry a balance, pay it off before adding new charges.

Anya, I know this is probably not what you wanted to hear. But do go back and look at the total interest charges you have paid over the past year. Many people get tripped up by credit cards, and end up paying dearly in interest charges over time. Don't continue being one of them.

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