There are several reasons why you should not go anywhere close to the limit of your credit card. Credit card limit is the maximum that you are allowed to spend on credit without making any payment towards the balance that you go in any particular given month. The following are the reasons why you should not approach the limit of your credit card or who go over it.
· It’s bad for your credit score. The credit scoring model considers is something called the debt utilization ratio while calculating the credit score. The debt utilization ratio is how much of your total credit limit you utilize with your spending. Higher the debt utilization ratio, the better it is for your credit score. This means that whenever your post credit limit of your credit card you are utilizing most of your credit limit which is that for the credit school calculation.
· It looks bad to the lenders. Whenever you are using a credit card to its maximum limits the lenders tend to get a little insecure. Utilizing large amount of credit limits of what’s the lenders at more of a risk in case you happen to default on your payment. It also seems like you were trying to run large amount of money on credit because you are hard up with income. Future creditors may decide to decline your credit application based on this.
· The closer that you get the credit limit the more you run the risk of going over the credit card limit. Most of the people think that after they have reached the limit on their credit card they will simply be unable to use it as it will be denied if they try to make a further transaction. This is not true. Your credit card will most likely go through with a transaction even though it has crossed its credit limit. This kind of overdraft will cost you as the credit card issuers will probably very extra charges. More than that you may find it difficult to bring it back under limit and to the time that you do you will continue to be levied with extra finance charges.
· The risk of increasing the interest rate. Going over the credit limit of a credit card may also be considered as a default of the terms and conditions that you agreed on when signing up for the credit card. This may trigger of a higher interest rate there is known as the default interest rate. Default interest rate is the highest amount of interest rate that a credit card issuer is allowed to charge the consumer. If this happens you will find it very difficult to pay off the balance on your credit card and it may become a very expensive proposition indeed.
· The larger the balance on your credit card the more difficult you may find to repay it. If you intend to revolve the balance and pay off in small installments by making above minimum payments it might take you months or even years to pay off the remaining amount. This means paying a large sum of money as interest-rate. So think carefully before you charge of credit card as the interest-rate that you have to pay is higher than any other kind of loan that you can avail of.