Credit cards have a spending limit, which cardholders are usually aware of. This limit resets on each billing statement with full and timely payment of the bill. Card users who do credit cycling spend up to this limit and quickly pay off the balance, allowing them to spend more than their normal limit. Experts say this behavior can be risky and can hurt credit scores.

What is credit cycling?

In credit cycling, users spend up to their credit limit and then quickly pay off the balance, creating space for more spending. According to experts, doing this occasionally is not a big problem. However, repeatedly using the full credit limit can be risky.

Risk for card companies

Experts say some consumers do credit cycling because of low credit limits. Others do this to quickly increase rewards and points for purchases. But card issuers view those who do this repeatedly as a risk, as it may be a violation of their terms and conditions or indicate financial difficulty.

Consequences of credit cycling

If the card issuer penalizes a customer who does credit cycling and closes their account, it can hurt their credit score. Credit utilization rate, which is the ratio of outstanding debt to the credit limit, affects credit scores. A low utilization rate improves a credit score, while a high rate hurts it. Experts recommend a utilization rate of less than 30 percent and ideally less than 10 percent.

Risks and potential penalties
Constantly spending close to the credit limit increases the chances of accidentally exceeding the limit, which can result in an over-limit fee or increased interest rate. Consumers who do credit cycling should pay attention to monthly subscriptions or other charges that can inadvertently exceed the limit. Card companies may also consider this as a sign of illegal activities such as money laundering, which may raise questions about the user's credibility.

Alternative Solutions

Experts suggested that instead of credit cycling, consumers can ask their card company to increase the credit limit, open a new credit card account, or split the payment across multiple cards. Experts also recommend paying credit card bills in between billing cycles as it reduces the credit utilization rate and can help improve credit scores. This process is different from credit cycling as it does not involve the intention to spend more than the prescribed limit.

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Disclaimer: This content has been sourced and edited from Amar Ujala. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.