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Going over your credit limit can result in being unable to use the account and being charged a fee. Interest rates may increase and the violation may be reported to credit reporting companies. It’s best to monitor credit use and make payments or request a credit limit increase to avoid charges.
Two things usually happen when you go over your credit limit. First, you won’t be able to use that particular credit account until the outstanding balance falls below the credit limit, either by paying off the balance or by increasing the credit limit. Second, your credit account will be charged an over-the-limit fee. There are two other possibilities, depending on your credit issuer and credit agreement. There is a good chance that your interest rate will increase, sometimes dramatically, and your credit issuer may report your violation to one or more of the credit reporting companies, although this does not happen all the time.
Traditionally, when consumers open a credit account with a company, whether it is a credit card or an account valid only within a particular store or chain of stores, the credit issuer places a limit on the amount of credit that can be used. will extend. This is called a credit limit. Historically, whenever a credit consumer used a credit account to make a purchase, the seller would contact the credit issuer and request approval, which was granted if the account was in good standing and the purchase did not push the price. outstanding balance above the credit limit. . If the purchase results in the balance being over the credit limit, approval will be denied. The only way an account could go over the credit limit was if monthly service charges and interest, when added to an outstanding balance, pushed the account balance over the credit limit before the monthly payment was received.
However, the practice gradually changed to one of approving credit purchases, as long as the account was in good standing and the balance before the charge was below the credit limit, regardless of what the balance after the charge would be. This adjustment to standard practice was a convenience for credit consumers and a boon for credit issuers: each approval generated a fee above the credit limit. Credit issuers and some consumers supported this practice due to consumer accommodation; consumer advocates objected because of the additional costs imposed on consumers without first alerting them that approval would result in an overage charge. Consumer credit accounts can also exceed the credit limit when the credit issuer lowers the credit limit to a level below the outstanding balance, a rare but not unheard of event.
Credit issuers will generally not report over-limit occurrences to credit reporting agencies, but they do report the outstanding balance and current credit limit, making it easier for a potential credit issuer to see that the consumer has exceeded the limit. credit limit . Another thing they will do is increase the interest rate, often by dramatic amounts as high as twice the original interest rate. This is another item that will appear on a consumer’s credit report and could cause other credit issuers to take adverse action. Many credit agreements include provisions that allow the credit issuer to increase interest rates if any other credit issuer takes punitive action.
There are two ways to avoid a charge if you go over your credit limit. The first is to make a payment directly to the issuer on the day the limit is exceeded, since balances are reviewed only at the end of the business. The second is to contact the credit issuer and request an increase in the credit limit. The more creditworthy a client is, the better the chances that this request will be granted.
Consumers are encouraged to monitor their use of credit. As a rule, credit scores begin to decline once more than one-third of a consumer’s available credit is used. Therefore, it is not advisable for consumers to let their credit balances get close to their credit limit.
Smart Asset.
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