Apparently credit cycling may be risky, and I just wasn’t aware of it? I thought it would be interesting unpack this a bit…
Spending more on your credit card with credit cycling
To start, let’s talk about what credit cycling is. When you apply for a credit card, you’re typically given a credit limit, which is the maximum amount you can spend on a card until you pay down the balance. There are many factors that go into determining that credit limit, ranging from your income, to your history with the bank, to how much total available credit you have.
Credit cycling is essentially the practice of spending more on your card in a billing period than the credit limit, by first paying down your balance. For example, say you have a credit card with a $5,000 credit limit. You then make a $5,000 purchase, pay off the $5,000 purchase, and then make another $5,000 purchase in that same billing period.
The fact that you spent $10,000 on your card that month despite having a $5,000 credit limit would be credit cycling. Even though you never exceeded the credit limit, you spent more than your total available credit in a cycle.
Note that credit cycling is different from the practice of just generally paying your credit card off early (or multiple times), which is something I always do, in order to limit my overall credit utilization, and keep my credit score high.
Is credit cycling risky and frowned down upon?
Travel on Point(s) writes about credit cycling, and how banks don’t like it, and it’s risky. I had actually never really thought about that, so I did some more searching online, and found several similar stories. All the stories are along the lines of “banks frown down on it,” with little concrete details about it being prohibited.
That got me thinking, because this honestly came as a surprise to me. It’s not like there are actually any published rules from banks in this regard, and for that matter, if they don’t want you to spend more than your credit limit over the course of a billing cycle, they could just cut off your spending ability.
I figured I’d ask the OMAAT community if people have actually had issues with this? Is credit cycling actually the issue, or is the issue overall suspicious purchase patterns, and people then blaming it on credit cycling?
For example, let’s say that you state in your credit card application that you have income of $50,000, and you’re given a credit limit of $5,000. Then say that you’re spending $20,000 per month with credit cycling. I can totally understand how that might raise some red flags, and could cause a financial review from a credit card issuer.
However, is credit cycling an issue if your spending patterns aren’t otherwise suspicious? For example, I pay my taxes by credit card, and sometimes that involves maxing out the limit on a credit card two or three times in a billing cycle, and immediately paying it down. I use the same card rather than multiple cards in order to use the product with the best rewards structure.
I’ve never had an issue — knock on wood — and neither has anyone else in my family. Like I said, I actually didn’t even realize this was something that was potentially frowned down upon. For that matter, I have a consistent record of making payments on-time, and I’m not “gaming” my credit card spending in any way. I pay everything by credit card that I can, of course, even if there’s a fee (assuming the math checks out), but that’s the extent of my “creative” spending.
So I’m curious if anyone has any data points to share. Is credit cycling frowned down upon only if the spending patterns are otherwise suspicious (and I think we all know what that largely entails), or has anyone had issues with credit cycling while spending reasonable amounts?
Bottom line
Credit cycling is a practice that many use in order to spend more than their credit limit on a card. The idea is that you can pay off your balance during your statement period, and then spend more again.
On the surface, you wouldn’t think this is an issue, since we typically view the credit limit as being the most credit you can be extended at any one point. Furthermore, if credit card issuers wanted you to spend no more than your credit limit during a billing period, they could just not reset your spending ability.
However, many report that there are big risks to that, so I’m curious what experiences others have had. I’ve done this frequently and have never had issues, though my spending patterns are also otherwise reasonable. So I wonder if this issue is for people spending suspicious amounts on their credits, and credit cycling is just what’s blamed?
What has your experience been with credit cycling, and what do you make of the risks?
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