Picture the scene: You have your credit card, you’re tapping away, you get a little carried away on a night out. Suddenly, you look down and realise you’ve gone over your credit limit. What happens then?
The truth is that using a credit card responsibly is very important. To help you understand why, let’s go back to the basics:
What Is A Credit Limit?
It’s important to note that your credit limit is not a fixed number. It is set by the credit card company when you apply for their card. This will be influenced by three key factors: your credit history, your financial circumstances, and the issuer's internal conditions.
After your card issuer sets your limit, remember not to exceed it.
Is It Possible To Go Over Your Credit Limit?
Depending on your card issuer, you may or may not be able to spend more than your credit limit.
If your card issuer does not accept over-limit withdrawals, your transaction will be declined. I think we can all agree that you don’t want to be at the front of a queue and have your card declined. So, avoid this if you can!
On the other hand, some card issuers do allow users to spend over their limit. This is called over-limit protection. This, unfortunately, does not mean you just have extra cash to spend on whatever you want.
If you do spend more than your credit limit, the bank may charge you extra fees. These fees can vary but will be charged every time you exceed the limit. Once charged, they will be added to your outstanding balance and will subsequently increase your debt.
What Are The Impacts Of Going Over Your Credit Limit?
Besides being charged added fees, those who go over their credit limit may face other consequences. Particularly if you are a repeat offender, things can get a little sticky between you and your card issuer.
To begin with, issuers may increase the interest rates on your credit card. This will result in higher charges on any outstanding balance you stack up. Eesh.
Additionally, your credit score may go down. Even bigger eesh.
A credit score exists to show how reliable you are with money. If you’re repeatedly going over your limit, you won’t exactly appear as a sensible spender…
If things get increasingly messy and you continue to borrow over the limit, penalties may be enforced. Your entire credit account may even close.
Not only is this inconvenient, but it will also look pretty bad on your credit record. This can affect your ability to apply for loans like mortgages. Therefore, it’s vital to track your spending and stop this from happening.
How Can You Avoid Going Over Your Credit Limit?
There are some simple tricks of the trade to help keep you in your credit limit:
- Monitor your credit card balance regularly, perhaps with a mobile app
- Create a realistic budget and track your expenses to ensure you stay on track
- Set up notifications and alerts to let you know if you’re close to your limit
If you really can’t stay within your credit limit, it might be worth requesting an increase from your card issuer.
It may seem tempting to go over your credit limit. But try to avoid this unless it is for an essential purchase.
Though you may have over-limit protection, you still run the risk of extra fees, higher interest rates, and a negatively impacted credit score.
To stay on the safe side, try to monitor your spending and practice budgeting where you can. This can help you maintain a healthy financial situation and avoid any nasty pitfalls.
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