Consequences of exceeding your credit card limit

A credit card facility allows the user to borrow money for personal use such as purchasing goods and services. The issuer like banks creates a line of credit to the user in advance and is subject to interest charges. There are various consequences of exceeding the credit card limit such as penalty fees and reduction of credit score which are illustrated in this article.

Consequences of exceeding credit card limit.

Penalty fees Banks and credit card companies charge extra fee other than the normal interest charge to the credit card holder if the credit card limit is exceeded. This additional fee is higher than the normal charge which penalises consumers and discourages them to exceed their limits. Also, the normal interest charge will be higher because it is calculated against the debt balance. Reduction of credit line If one continuously exceeds his credit limit, the credit card company will either reduce the credit line to a low credit card line or close the account. Reduction in personal credit score Credit rating score is important when applying for top credit cards with 0 interest and for visa card application, thus one cannot qualify for this facility if his credit history is bad. Also, the line of credit is determined by this credit score, therefore the poor the credit score the lower the advance money. No further purchases allowed If one constantly exceeds his credit limit, he cannot make any further purchases of goods and services until he pays the outstanding amount. Too risky to be given a credit line Credit card companies consider one who constantly exceeds his credit limit as a poor manager of his personal funds, thus too risk to grant a credit line to such individual.

How to avoid exceeding credit card limit

Stop overspending
It is recommended to stop overspending and to control expenditure behaviour in order to avoid exceeding the credit card limit. Spending behaviour is easily controlled by setting up a monthly budget on which money will only be spent on budgeted goods and services. Paying down the balance Credit card limit can be effectively managed by paying down the balance so as to maintain a low credit balance and also it reduces interest charges.