People who use credit cards take their credit card limits seriously, but would your spending habits change if you could break those preconceived notions about credit card limits? It’s important to know that your credit card limit should not be your actual spending limit. Anyone with a credit card should take care to spend well below the credit card limit. Experts recommend maintaining a balance of 30% or less of the credit card limit. Spending any more than this or putting that limit under pressure can result in a blow to your credit score.
It’s also a myth that you are stuck with whatever credit card limit you were issued. A simple call to your credit card company can result in a higher spending limit. This generally only works for people who already have good credit or for those who can prove their finances are getting back on track. Instead of dwelling on a lower credit limit that you can’t bump up, think of it as a smarter way to manage your finances. Many people with excessive credit card limits let them go to their heads, which only results in massive amounts of debt.
On the flip side, getting your credit card limit increased does not give you free reign to spend beyond your means. The higher your balance on the card stays, the more money you are paying to the credit card company in interest. The best way to take advantage of a credit card company is to keep a low balance and make double or triple payments each month to avoid interest. An even better way to do this is to pay off that balance completely within one to two months.
Another myth is the belief that if you go over your credit limit but pay it back before the due date, you won’t be charged any over-the-limit fees. This isn’t necessarily true. Credit card companies don’t want to lose you as a customer from declined purchases, so they allow you to go over your limit on purpose. In fact, they happily charge those over-the-limit fees each time you make a purchase that puts your balance over the top. Penalties of $30 or $40 dollars each can add up quickly and you will still have to pay them even if you turn around and pay that balance the next day.
Another myth is that credit card limits will never be slashed; they can only go up. As we’ve seen during the recession, this isn’t true. Countless credit card companies have slashed limits to address the over-lending issue that led to the economic collapse. It didn’t even matter if you were a responsible consumer and used your card wisely.
To make the most of your credit card, be advised of these credit card limit myths and use your head when making purchases. Be timely on those credit card payments and take advantage of cards that offer incentives. For example, cashback credit cards can help negate the costs associated with accrued interest by giving you back a certain percentage of cash based on your spending habits. And any way you can receive money from your credit card company has to be worth looking into.
Save Your Cash is an
I currently use 5 credit cards. I use each one for the where I get the best benefits.