Credit expert with over 20 years experience: ‘Nothing good' comes from maxing out your card

Nearly 40% of cardholders in the U.S. have maxed out a credit card or come close to doing so, according to Bankrate's October credit utilization survey.

But carrying that balance from month to month can spell trouble for your credit score.

"Nothing good comes out of running up large balances on credit cards," says John Ulzheimer, a credit expert with over 20 years experience who formerly worked for FICO and Experian.

That's because your credit utilization rate, which is the amount of available credit you're using at a given time, plays a large role in how your credit score is generated. It accounts for 30% of how your FICO credit score is calculated and is an "extremely influential" factor used to generate your VantageScore credit score.

Maxing out your credit card can throw off your credit utilization ratio, thus harming your overall score. In fact, 41% of Americans say their credit score declined as a result of maxing out their card or coming close to doing so, Bankrate found.

Why it's worth keeping your credit utilization low

The credit scoring agencies didn't arbitrarily decide to make your credit utilization ratio an important part of your score, Ulzheimer says. They've got data to back the decision up.

"They care because there's an empirical relationship between higher utilization and elevated credit risk," he says. "As that utilization ratio goes up, so does the likelihood of someone missing a payment."

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However, the opposite is true as well, which is why Ulzheimer recommends keeping your utilization rate around 10% or lower.

"The optimal ratio is less than 10% for a reason," he says. "People who have utilization ratios less than 10% are the lowest risk for that particular metric, which is why you earn such a large amount of credit score points."

How to keep your credit utilization low

Since your credit utilization rate plays an outsized role in how your score is calculated, here are two strategies that may help you keep yours low.

1. Ask for an increased credit limit

Asking your lender for an increased credit limit can automatically improve the ratio of how much credit is available to you compared with how much you're actually using.

If you have a balance of $2,000 on a credit card with a $4,000 limit, you're utilizing 50% of your available credit. But if you're able to increase that limit to $6,000, your credit utilization rate drops to around 33%.

But be aware that you typically need to have decent credit already and a history of on-time payments for your lender to approve a limit increase. Additionally, it's important not to spend up to your new limit, if you're granted one.

2. Don't close old credit cards

Not only can keeping older cards open increase your credit age, which is factored into your credit score, but it can help improve your credit utilization rate.

That's because if you have an unused card, that credit limit stills count toward your utilization ratio, Ulzheimer says.

Say you have two credit cards, each with a $5,000 limit, and hold a balance of $2,000 on one card. In this scenario, your utilization rate is 20%. However, if you close one of the cards, your overall credit limit is cut in half, and with it, your credit utilization rate shoots up to 40%.

"If you start closing a bunch of older accounts you're not using, your ratios are going to go up as a mathematical certainty," Ulzheimer says. "As your ratios go up, your credit scores go down."

Remember, improving your credit score is more of a marathon than a sprint. In addition to keeping your utilization low, aim to consistently make on-time payments and avoid opening too many new lines of credit, Ulzheimer says.

"No one likes that advice because it's not always easy, but it's a good strategy," he says.

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