How to Avoid Credit Limit Charges

by Latoya Irby

Most standard credit cards have a credit limit, the maximum amount you can charge without facing a penalty. Though creditors give you a limit for charges, they'll actually let you go over the limit, but charge you for doing so. Going over your credit limit can have some costly effects.

First, your creditor will likely charge an over-the-limit fee of as much as $39 each month your balance is over your credit limit.

Second, your interest rate can increase to the card's default rate, which in some cases is as high as 31%. This increased interest rate makes it more costly to carry a credit card balance beyond the grace period.

Lastly, your credit score takes a hit. Since 30% of your credit score compares your debt level to your credit limits, having an over-the-limit balance will cost credit score points. (See 15 Credit Score Killers.)

Here are some ways to avoid the costs of going over your credit limit.

* Know your credit limit. Not knowing your credit limit is a disaster waiting to happen. It's much easier to go over your limit if you don't know what it is. To find out your credit limit, look at your billing statement. Since creditors sometimes raise and lower credit limits, it's a good idea to monitor your limit regularly.


* Don't expect your creditor to stop you. It'd be nice if your credit card was declined for purchases that put you over your limit. Unfortunately, your creditor will let you exceed your limit. After all, they make money when you do it, so why would they stop you? It's up to you to avoid swiping your card when you're in danger of going over your limit.


* Enroll in balance alerts. Some credit cards send alerts to cardholders when their balance is within a certain percentage or dollar amount of their credit limit. If your credit card offers this type of alert, sign up for it.


* Keep your balance low. A low balance gives you room to make purchases without going over your limit. Not only that, it's better for your credit score. A good credit card balance is 30% of your credit limit or lower. That's a balance of $300 or less on a card with a $1,000 limit.


* If you're not sure, check. Anytime you're unaware of your balance and credit limit, check before making a purchase. Many credit cards have an automated line available 24/7 for checking this type of information. Use the customer service number on the back of the credit card. If you have a cell phone, you can even call from the store before making your purchase.