What Are the Signs of Credit Overuse?
- If you've recently made one or more planned large purchases and your credit card balance is maxed out as a result, you probably don't need to worry, especially if you've designated funds from future income to cover the expense. However, credit card balances are consistently at or near their limits are a clear sign of credit overuse. Especially if you carry several credit cards with maxed-out balances or if you worry about the amount of money you owe, you may definitely be headed for financial trouble.
- Making minimum payments on your credit card balances because you can't afford larger payments is another sign of credit overuse. If you pay off your credit card balances in full every month, you can take advantage of the "grace period" most credit cards offer to avoid paying interest charges, in effect giving yourself a short-term interest-free loan. However, if you carry a balance on your card, the interest rate added to your credit card bill can increase the price of your purchases dramatically over time.
- "Robbing Peter to pay Paul," or juggling your bills is another sign of impending financial trouble. If you're consistently late with your credit card payments or skip payments altogether, your credit takes a major hit, even if you previously had very good credit, according to MyFico. If you continue to miss payments, your creditors may seek liens against your assets. You may also find it difficult to rent an apartment, obtain insurance or even find a job, because landlords, insurance providers and employers often run credit checks before offering you a lease, policy or a job, Bankrate.com states.
- Using credit cards or cash advances to pay for everyday purchases such as groceries or planned expenses that include insurance bills is a major sign of credit overuse. However, you should avoid closing your credit card accounts if at all possible, especially cards with an unpaid balance. Instead, try to pay down the balance and allow the card to remain open without using it. If necessary, cut the card itself, but leave the account open to improve your debt to credit ratio. Older accounts in good standing also improve your overall credit score.