There are new rules in effect concerning credit card transactions. They change the way that your account works when you go over the credit limit of the credit card. Furthermore, they may determine if the credit card company will authorise a transaction that would place you over your credit limit if approved. You should be familiar with what happens if you go over your credit limit on your credit accounts.
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Restrictions on Over the Limit Transactions
As of Feb 22, 2010, you must opt in with your bank to allow them to authorise a charge that would cause your account balance to go over the credit limit. If you do not expressly allow them to authorise charges that will place you over your credit limit, they may decline the charge.
According to the website indexcreditcards.com, the average credit card over the limit fee is £22.10 as of October, 2009. These fees are a substantial source of revenue for the banks and credit card companies. If you opt in to allow your credit card company to allow over the limit transactions, expect to pay a fee for the privilege. The card companies may only charge you this fee once per billing period.
If You Didn't Opt In
If you didn't opt in to allow your credit card company to allow over the limit charges, the bank may still approve a charge that would cause you to go over your credit limit. If they do so in this case they cannot charge you an over the limit fee. If you have excellent credit and are a good customer, some credit card companies will increase the credit limit on the spot for you.
There are effects of exceeding your credit card credit limit other than the fees. Continuously exceeding your credit limit may cause a credit card company to reduce your credit line or close your account. This behaviour demonstrates to the credit card company that you are practicing poor spending habits and not managing your money correctly making you a higher risk. Exceeding your credit limit can also decrease your credit score for the same reasons since it reduces your available to outstanding credit ratio. This ratio is a major factor in the FICO score.
The best way to prevent exceeding your credit line on credit cards is to stop spending on the credit card and start paying the balance down. Establish a written budget and determine where you want to spend every dollar in advance. You can also sign up for e-mail or text message alerts that tell you when you are close to your limit. If you can't avoid a purchase that would put you over your credit limit, call the credit card company in advance and request that they increase your credit limit.
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