How credit cycling works and why it’s risky

Credit cards are a convenient tool for making purchases and managing expenses. However, there are certain behaviors that consumers should be aware of in order to avoid potential risks. One such behavior is “credit cycling,” a practice that involves reaching the credit card limit and quickly paying down the balance to free up more available credit.

While occasional credit cycling may not seem like a big issue, consistently engaging in this practice can have negative consequences. Card issuers may view credit cycling as a red flag, signaling potential financial difficulties or even illegal activity like money laundering. As a result, users who frequently max out their cards and pay them off may face penalties such as account closures, loss of reward points, and damage to their credit score.

Maintaining a low credit utilization rate is essential for a healthy credit score. Experts recommend keeping credit utilization below 30%, with even lower rates being more beneficial. By constantly pushing the credit limit and risking over-limit fees or increased interest rates, consumers who credit-cycle may inadvertently harm their credit standing.

Instead of resorting to credit cycling, there are alternative strategies that consumers can employ to manage their credit effectively. These include requesting a higher credit limit from the card issuer, opening a new credit card account, or spreading payments across multiple cards. Additionally, paying down credit card balances early in the billing cycle can help reduce credit utilization and improve credit scores.

In conclusion, while credit cycling may seem like a quick fix for financial needs, it is important for consumers to be aware of the potential risks involved. By adopting responsible credit management practices and avoiding risky behaviors like credit cycling, individuals can maintain a healthy credit profile and avoid negative consequences in the long run.