Isn’t it an awesome feeling to open your credit card statement and see a large number as your credit limit? If you’re like many people, then just knowing you have those funds at your fingertips might be enough to start burning a hole in your pocket. Just because you have a limit on your card doesn’t mean that you need to try and reach it. In fact, there are actually a few very good reasons you shouldn’t max or, or exceed, your credit limit.
Your Credit Score Won’t Thank You
Credit utilization is a term that all card users should be familiar with. The definition is the ratio of your actual card balance to your total credit limit. Meaning, the higher your balances are, the higher your credit utilization. Thirty percent of your credit score is based on how much of your credit you are actually using. The lower the better. This means that the closer you are to your credit card limit or the higher your credit utilization, the more negative impact on your credit score.
New Credit Could Cost You
Credit utilization is especially important in a period where you may be applying for other credit. It’s important to keep that utilization number as low as possible. Before granting you additional credit, a new lender is going to want to see that you are using much less credit than you currently have available. If the utilization number is too high then you come across as being a higher risk, and they’ll be less likely to grant you the additional credit that you’re looking for. It’s important to keep this in mind before going overboard and exceeding your credit limit.
You Could End Up with More Fees
Most credit card companies have another fee that gets triggered once you max out your card. An over-the-limit fee. If you exceed your limit, by even just a cent, you could get hit with that fee. Also, if you carry a balance, the finance charges that get assessed each month could end up sending you over the limit, which will in turn trigger the charge.
Meet the Penalty Rate
On top of the over-the-limit fee that your credit card company could stick you with, there is also a little-known trigger in most contracts that could really hurt you in this situation. The terms and conditions of most contracts state that if you default on any term of your card, including exceeding your limit, the issuer can automatically boost your interest rate up to the “penalty rate.” This rate can run as high as 30%!
It wouldn’t be normal if you didn’t get the urge to splurge a little, however it’s important that you remind yourself of the consequences that can come along with spending more than you have. The down side of exceeding your credit limit has a lasting impact as well. You won’t just be impacting your current financial status, but you could be making things harder for yourself down the road also.
If you find yourself struggling with debt or would like to find out about becoming debt free, call Debthelper.com at 800-920-2262, or visit @ www.debthelper.com.
