We all know the dangers of carrying high credit card balances or missing payments. But there’s a less-discussed credit card behavior that can be just as risky: credit cycling. This involves repeatedly maxing out your credit cards and then quickly paying them down to free up spending power. While an occasional instance might not be a major problem, consistently engaging in this practice can have serious consequences.
Experts compare it to speeding – a little over the limit might go unnoticed, but consistently exceeding it will eventually lead to trouble. Credit cycling can trigger your card issuers to view you as a higher-risk customer. They might close your account, cancel your rewards program, and even negatively impact your credit score. This is because frequent maxed-out cards can raise red flags, signaling potential financial instability or even illegal activity like money laundering.
Why do people credit cycle? Sometimes, it’s a way to manage a large, unexpected expense like home repairs or a wedding. Others might attempt to accelerate rewards point accumulation. However, the potential downsides significantly outweigh these benefits. Consider the damage to your credit score if your account is closed, reducing your available credit and potentially increasing your credit utilization rate. This, in turn, could make it harder to secure loans or credit in the future.
Beyond account closure, exceeding your credit limit even accidentally, due to recurring subscriptions or unexpected charges, can result in hefty over-limit fees and interest rate hikes. The risk is simply too significant to justify the practice.
So, what are better alternatives? Instead of credit cycling, consider requesting a higher credit limit from your card issuer, opening a new credit card account, or spreading your spending across multiple cards. A much safer and more effective strategy is to pay down your credit card balances early in the billing cycle. This reduces your credit utilization rate, which is a key factor in your credit score, even if you use your cards frequently.
In short, while credit cycling might seem like a clever way to manage spending, it’s a risky habit that can lead to serious financial repercussions. Prioritize responsible credit card usage and explore safer alternatives to achieve your financial goals.
