Credit Card Limits: Just Say No to the Privilege of Exceeding Them
You might think of your credit limit as a line set in stone.
But credit card companies have been making money in recent years by allowing customers to go over their limits and then charging fees for each purchase while the balance exceeds the limit. At $39 a pop, over-limit fees can add up to big bucks.
That's all about to change, though when the bulk of the Credit Card Accountability, Responsibility and Disclosure Act goes into effect February 22. Among the new reforms is a rule requiring credit card companies to get card holders' agreement to credit limit protection before they can charge over-limit fees.
What does that mean for you?
Credit Card Limits: You Must Opt In to Go Over
If you do nothing, then you're automatically "opted out" of credit limit protection. That means credit card companies can't charge over-limit fees, and without the ability to make money from those transactions, you can bet they will not allow you to exceed your credit limits. That means your credit card is denied if you try to make a purchase that pushes your balance over the threshold. Embarrassing? Sure, but in the long run it saves you money from not having to pay expensive fees.
Expect credit card companies to market the advantages of opting in. Granted, the ability to exceed your credit limit saves you from the awkward moments of getting your card denied, and it might sound like a good idea on the face of it. But experts advise against opting in because you pay for the privilege each month your balance exceeds your credit limit. Besides, when you go for a car loan or mortgage, you look better to lenders if your credit card balances are well below credit limits anyway.
Keep Credit Card Use Well Below Limits
Part of your credit score depends on the percentage of available credit you use. Using most of your credit brings down your score. Most experts advise to keep credit card balances below 30 percent of credit limits.
If you want to protect your credit score and avoid getting your credit card denied, check the credit limits on all your credit cards, and keep track of purchases so you stay well below those limits each month. Be aware that credit card companies slashed limits on some accounts in 2009, so your limits may have decreased since you opened the accounts.
Published 01/08/10 (Modified 07/09/14)