Going over Limit on Credit Card Can Result in Increase in APR And Card Cancellation

If your credit card goes over limit then there are several things that can happen. Your lender can increase interest rates, reduce your credit limit or just let you off with a warning. No lenders like users who go over the credit limit over their credit cards. It is the kind of behavior that displays are high-risk in the borrower. Running the credit card to the maximum limit and then going beyond without making any payment first may imply that you are using your credit rashly and can default on the payment at any point of time.

If this kind of going over limit happens repeatedly the credit card issuer can cancel your credit card account altogether. This will prove to be highly inconvenient as given the history of the prior credit card you will find it equally difficult to get a credit card with a new service provider. Faced with the risk of increase in the interest rate and finance charges you might find it harder to revolve the balance and make the payment every month. You will also end up paying a lot of money as interest.

Running your credit card over the maximum limit also means that your debt utilisation ratio is more than 100%. This is extremely negative information that could influence your credit score negatively. In an ideal situation it is advised to keep the credit utilisation ratio down to 30% of the total credit limit available. This means that ideally the balance that you should have on your credit card should be about 30% of the credit limit available to you.

The first step that you need to take is to make immediate payments to bring the balance on your credit card below the limit. Next you need to stop charging the card and start making payments so that your balanced ratio can be reduced as much as possible.

You need to think carefully and hard as to why you are maxing out your credit card. If it is a simple matter of replacing cash for a credit transaction then you just might need to cut down the credit card usage and pay in cash for whatever and whenever you can.

Leave a Reply