1. Your credit score will drop.A large part of your credit score - 30% to be exact - is based on how much of your available credit you're using. This ratio of credit card balances to credit limits is known as your credit utilization. The higher your credit utilization, or the closer your credit card balances are to your credit limit, the more your credit score is hurt. Maxing out one credit card is pretty bad for your credit score. Maxing out all your credit cards is much worse.
2. Lenders won't like it.When you make an application for a credit card or loan, the bank wants to see how much of your available credit you're using. If your credit card balances are too high, banks take that as you have more debt than you can handle. Maxed out credit card balances could get your credit card and loan applications denied.
3. You risk going over your credit limit.Even if you keep your balance just below your credit limit, you could still end up over your credit limit once finance charges are applied to your balance. Once your balance goes over your credit limit, it can be difficult to get it back down since you get charged an over-limit fee each month your balance is over the limit. Stay far away from your credit limit if you want to avoid an over-limit fee.
4. The balance is harder to repay.Depending on your credit limit, a maxed out credit card balance could take years to repay, especially if you pay only the minimum. You may plan to pay the balance in full, but parting with that much cash might be too difficult to do as the payment due date approaches.
5. You could trigger the penalty rate.
Credit card companies have the right to raise your credit card interest rate if you default on your credit card terms by maxing out your credit card. The penalty rate is the highest interest your credit card company can charge and is typically a minimum of 30%. A high interest rate applied to a high balance is disastrous for your credit card repayment plan.