When used responsibly, credit cards can be a good thing. Credit cards offer convenience and security, and using them can help you build a positive credit history that can help you get other loans. However, overusing your credit cards--or any other type of credit--can lead to a host of problems.
Debt
One of the biggest problems with overuse of credit is the accumulation of debt. If you are overusing a credit card or line of credit, it typically means you are charging amounts that you can't afford to pay off right away. When you carry a balance on a credit card, you are charged interest, and the longer you carry that balance, the more interest you will accrue. Likewise, if you continue to take advantage of a line of credit, such as a home equity line, you will pay interest until you can get the amount paid off.
Late Payments and Default
When you overuse credit and build debt, you may have trouble making the necessary minimum payment every month. If you pay late or pay less than the minimum due you incur additional fees, which just adds to your debt. Eventually, you may reach a point where you can't make payments for several months in a row. At that point, you will be in default and your lender may send your account to a collections agency.
Damaged Credit and Lowered Credit Score
Overusing the credit you have can damage your credit and lower your credit score in several ways. For instance, a big portion of your credit score is based on what's called a debt-to-available credit ratio--essentially how much debt you have outstanding compared to how much credit you have available. Ideally, you want this ratio to be below 35 percent, but if you overuse your credit, you are likely to have a much higher ratio. So even if you manage to stay current on paying your debt, your credit score may be lowered significantly. If you keep getting additional credit cards or transfer balances to avoid paying them, it can also lower your score. And, of course, if you fall behind on payments or default, it will negatively affect both your credit report and your credit score.
Other Problems
Credit overuse that damages your credit and lowers your credit score can lead to a host of other problems. It might make it more difficult for you to get a job, because many employers perform a credit check before making a hiring decision. Credit overuse can also make it difficult for you to get a home or car loan and lead to higher rates if you do get one. It can also make it more difficult to rent and apartment.
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