Understanding Credit Card Limits

Paying  with credit card Donna Jefferson

Know your limits!

Just because credit card companies give you a tolerance limit you should make it a rule not to go over the limit.

Why? When you go over your credit card limit several things can happen.

  • The credit card company can consider you as a risk and your credit card could be frozen. This could cause embarrassment and be a hassle if you didn’t realize this before trying to charge again, even if you have paid your balance down some. It may require a call to the credit card company to have them “unfreeze” your account.
  • Most credit card companies charge over the limit fees even if it is slightly over the limit. If your balance is high, even monthly fees and penalties can cause you to go over the limit. If this happens to you reach out to the company, they may work with you to reduce the fee.
  • When the time comes for the credit card company to review your account for a possible increase in your credit you will most likely be denied the limit increase. If you continually go over your limit, you may even find a credit card company will decrease your limit.
  • Maintaining a high balance on your credit cards will cause your FICO score to drop. If you were to apply for additional credit through another company you risk the chance of being denied due to a drop in your credit score.

This means, when you are issued credit, it is best practice to utilize your credit but more importantly, maintain a lower balance on your credit cards in comparison to the credit limit. This is especially important when you are working to rebuild or increase your credit score. Although credit utilization (payment history) does generate 35% of your credit score calculation, credit ratio or amount owed makes up 30% as well.

Creditors want to extend credit to those that show a history of credit utilization and proper use of credit cards is a very important factor in determining so.

Should you go over your limit on your credit cards, do everything you can to pay it down as quickly as possible. If you set a goal to maintain a balance of 30% or less of your limit you will show positive credit worthiness and responsibility on your part.

Finally, Don’t close an account just because you have paid it off or you will likely see a decrease in the credit score as this lowers your credit ratio and utilization. Take a close look before you decide to close any accounts unless a Factor on your credit report shows too many accounts.

Build Your Credit

Learn ways to be responsible with your credit and your finances.

Credit is a big responsibility, educate yourself, be responsible and watch your scores increase!

Educate yourself as much as possible and be responsible!


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