Understanding Credit Cycling: What It Is and Its Potential Risks
Understanding Credit Cycling
Credit card misuse comes in many forms, ranging from not paying monthly bills in full to maxing out your balance. However, there’s one risky behavior many might not be aware of: “credit cycling.”
Credit cards have a spending limit, and cardholders usually know this limit, which is the total amount they can borrow. The limit resets with each billing statement when users pay their bill in full and on time. Users who credit-cycle reach their spending limit and quickly pay down their balance, essentially charging beyond their typical allowance.
Infrequent credit cycling is generally harmless. Nevertheless, constantly “churning” through available credit can have consequences, warns Ted Rossman, senior industry analyst at CreditCards.com.
The Risks of Credit Cycling
Card issuers may cancel a user’s card and revoke their reward points due to credit cycling, negatively impacting a user’s credit score. “If there’s a chance credit cycling can go sideways, it’s best not to do it and look for alternatives,” advises Bruce McClary, senior vice president at the National Foundation for Credit Counseling.
How Credit Card Companies View Cycling
The average American’s credit card limit was about $34,000 at the end of the second quarter of 2024, according to Experian. The limit varies across generations and factors like income and credit usage. Some consumers might want to credit cycle to pay for large expenses such as home repairs, weddings, or costly vacations. However, experts warn that card issuers could view repeated cycling as a red flag.
Potential Consequences of Credit Cycling
Regularly maxing out a card may breach certain terms and conditions, signaling financial difficulties. If a card issuer closes an account due to credit cycling, this could negatively impact the user’s credit score. Experts generally recommend keeping credit utilization below 30%, and below 10% to significantly improve your credit score. A closed card reduces the overall credit limit, increasing the likelihood that a user’s credit utilization rate would rise if they have outstanding debt on other credit cards.
Alternatives to Credit Cycling
Instead of cycling, consumers could request a higher credit limit, open a new credit card account, or distribute payments over several cards. Rossman suggests paying down your credit card bill mid-cycle instead of waiting till the end. This strategy can decrease a consumer’s credit utilization rate and potentially boost their credit score, as card balances are usually reported to credit bureaus at the end of each billing cycle. “It can be a good way to improve your score, especially if you use your card a lot,” Rossman adds.
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