There are still many credit card companies that offer a sort of “overdraft coverage” to card holders. With these cards, you can exceed your spending limit, but there are fees involved and other associated penalties that you will want to avoid.
Basically, there is never a good reason to go over the limit on any credit card account. In fact, you should strive to keep your balances as low as possible.
The Danger Zone that is Your Credit Limit
Here is the scenario: You stumble into an amazing sale at your favourite store. Everything is 50% off, including several items that you’ve had your eye on for a while. You don’t have enough money in your bank account to buy everything you want and still be able to eat while waiting for your next paycheck. And while your credit card is close to being, you know that your issuer will allow you to exceed your limit. What do you do?
You walk away.
No kind of sale is worth the hassle that going over your credit limit will bring. First of all, there will be a fee to pay, probably between $25 and $35, but the trouble doesn’t end there.
- Your credit score might take a hit. When you go over a credit limit, most lenders see this as a red flag. To them, it may indicate that you are having trouble managing your credit responsibly, and this could make you a risky borrower. If your credit card company decides to report the activity to the primary reporting bureaus, you could see a significant drop in your credit rating. How much? It will vary according to what your credit score was before the overspending occurred. According to FICO, if your score is a solid 780, you can expect to lose between 25 and 45 points.
- Your relationship with your creditor may be damaged. If you habitually go over your credit limit, your providing company may decrease your spending limit. This is not only inconvenient, but it could also throw off your credit utilization rate even further and cause and additional drop in your credit score. And if you fail to bring your balance down to where it should be over an extended period of time, the credit card company might simply close your account. Of course, you will still be responsible for the amount that you owe, but you will no longer have access to this line of credit, and you may be denied credit by other issuers.
Managing Your Credit Responsibly
Having access to a credit card is a convenience, for sure, but it is also a good way to build your credit rating if you can successfully manage your accounts. Ideally, you should only be using 30% or less of any line of credit, and you should always try to pay more than the minimum amount due every month. If something comes up, and you know that you will have difficulty making a payment on time, let your creditor know immediately so that some kind of an arrangement can be made.
Another Way to Build Credit
If you need to buy a car, you should know that financing your vehicle purchase will give you an opportunity to build up your credit score with every timely payment you make. And if you have damaged credit due to credit card overuse, or for any other reason, you may still be able to get approved for a car loan.
At Canada Credit Approval, we can work with most credit types. Also, our process is fast and easy. See what we can do for you today by filling our our simple and secure online application.