Three national credit bureaus, known as TransUnion, Equifax and Experian, gather consumer information and use it to make credit reports. Some information hurts people, such as spotty payment histories, old unpaid loans and credit cards, repossession and foreclosures. Even seemingly minor activities like exceeding a credit limit can impact credit reports and make a person look less desirable to creditors, Maxine Sweet of the Experian credit bureau explains.
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Credit cards are revolving credit lines that consumers can use for various transactions. Banks set spending limits on these accounts based on card holders' credit reports, income and other financial data. Consumers are not supposed to exceed the set limit, but it sometimes happens. The charge is declined if the person did not specifically opt in to allow over limit charges, according to the MSN Money financial website. Otherwise the bank may choose to allow it.
Credit reports reflect over-limit spending because they show credit limits and account balances. Maxine Sweet warns that this information hurts consumer credit scores because it is a red flag for poor financial management. Other lenders might decrease the person's credit limits on other cards or raise the interest rates. The over limit records may prevent opening of new accounts. Banks change over limit fees, although federal law limits them to a "reasonable" amount. This means about £16, according to the Bankrate financial website.
Sweet advises paying down the credit card balance as soon as possible to bring it back below the limit. This solves the credit report problem because the bureaus will show that the account balance is lower than the spending limit once it is paid down sufficiently.
Prevent exceeding the credit limit by telling the card issuer to disallow it. Federal law requires banks to decline charges that would bring a card holder's account over the limit unless that person specifically opts in to allow it, according to MSN Money. Customers can let their banks know they specifically do not want to enable the ability to make charges over the limit. This means transactions are rejected once the limit is reached. Credit reports do not show the rejected charges and no fees are incurred.
Avoid the temptation to enable the ability to exceed credit limits by asking for an increase. Many card issuers grant higher limits automatically or on request for good customers. People who are planning to make large purchases or who have a balance close to the limit should consider asking for more spending power. This usually results in an inquiry that shows up on the card holder's credit records. Dayana Yochim states that can cost up to five points on the credit score if several requests are made within a short time period with different banks.
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