If you have credit cards, you’re likely familiar with the concept of a credit limit and whether or not you’ve exceeded it. Sometimes, exceeding your credit limit can lead to fees and penalties. This blog post will teach you more about your balance exceeding your credit limit!
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If you are wondering what is a credit limit, it is the maximum amount of credit you can use at any given time. It’s also known as your available balance, the maximum amount of money you can spend on your credit card before paying back what you owe. So, for example, if you have a $500 limit on your credit card, you’ll have access to $500 worth of spending power with that card until it gets paid off or until another payment comes due and reduces your available balance again.
If you go over your credit limit, the bank will likely charge interest on the amount of credit used that exceeds what was authorized by your lender. This can mean a disaster for your finances.
You might also be hit with an overdraft fee or could see interest rates increase if they are already high. In addition, your debt-to-income ratio may also increase, which could hurt the chances of getting approved for future loans and lines of credit—not to mention it’ll negatively impact your overall financial health.
“Those who maintain low balances and have a strong record of on-time payments will have greater spending power. Those who carry larger balances and make late payments will see their spending power shrink,” explain Lantern by SoFi advisors.
If you’ve gone over your credit limit, don’t panic. There are several ways to avoid going over this again in the future:
- Pay down the balance as soon as possible. If you can pay off your balance before the grace period (the time between when a payment is due and when interest is charged) ends, then there won’t be any additional charges on top of what you’ve already paid.
- Pay a minimum payment but ensure it’s more than just the minimum due. Although this will take longer to reduce your debt, it will help keep your interest rates lower by keeping them from rising too high too quickly.
- Call up your credit card company and ask them to increase the limit on your account or give you an extension in terms of how long they allow payments.
If you exceed your credit limit, you could face various penalties. But, no matter what kind of adverse action is taken against your account, the best thing to do is to get in touch with your credit card company as soon as possible.
It’s best not to itemize purchases on top of the amount that’s already maxed out—in other words, don’t charge more things on your card until the previous balance has been paid down. Remember that any late fees or interest charges will only add up until they exceed the amount spent on those items.
If you have exceeded your limit, don’t panic. It’s not a huge deal, and there are ways to fix the problem. You can also do some things to prevent it from happening again in the future.