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My credit card company has this language in the agreement:

You must keep your Account balance below your Account credit line.
If you do not, we may request immediate payment of the amount by which you exceed it.

Is this standard practice? How is a credit limit a limit if you can go over it? I'm thinking about trying to find a different card which will simply decline all purchases that would put me over the limit, but before I get too far into my search I want to know if such a thing even exists. Is it possible? If not, how can one put a hard limit on how much indebtedness that can be incurred in their name?

  • You should aim to keep your credit utilization low (various suggestions are 10%, 20%, 30%) - lower utilization helps your credit score more, and 30% should be considered a ceiling. Carrying a credit card balance is expensive (as credit card accounts typically carry high interest rates). But your situation may differ, and you might be able to handle larger amounts. If you have high enough income that you are spending, and paying off higher amounts, you might want a higher credit limit. – ChuckCottrill Jan 6 '15 at 2:57
  • @ChuckCottrill Actually I'm contemplating a lower limit for budgeting purposes, but it sounds like the best idea might be to get a new card with the lower limit and save the higher limit card for emergencies. – Michael Jan 6 '15 at 3:20
  • @Michael: It might be bad for your credit to have a lower limit. One of the things they look at for credit is percent utilization, i.e. the percent of available credit that you use. A lower limit for the same amount of spending = a higher utilization percentage = lower credit score. – user102008 Jan 6 '15 at 3:23
  • @user102008 So, one card with high limit unused, plus one with a low limit maxed, they take the average, so overall it would be under, say 30%? Or would the maxxed one still be bad? – Michael Jan 6 '15 at 4:09
  • 2
    @Michael credit limits are NOT budget tools. – RonJohn May 2 '17 at 13:52
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Before the Credit Card Act of 2009, it used to be common practice to allow consumers to go over their credit limit. This allowed banks to:

  • Collect more interest on higher balances
  • Charge fees for going over the limit

Typically, the over limit fee became active when your statement balance exceeded the credit limit after the statement cycle closes. If your payment posted before the statement cycle ended, the fee would not be charged.

As the link above states, the over limit feature is now opt-in to avoid having to pay an over-limit fee.

Ask for clarification on how the over-limit feature works with your specific credit card. Banks require opt-in, but they can still increase your credit limit temporary or permanently without charging you a fee. The Credit Card Act of 2009 does not cover every possible scenario, especially edge cases.

Source: http://www.gpo.gov/fdsys/pkg/STATUTE-123/pdf/STATUTE-123-Pg1734.pdf

‘‘(k) OPT-IN REQUIRED FOR OVER-THE-LIMIT TRANSACTIONS IF FEES ARE IMPOSED.— ‘‘(1) IN GENERAL.—In the case of any credit card account under an open end consumer credit plan under which an over the-limit fee may be imposed by the creditor for any extension of credit in excess of the amount of credit authorized to be extended under such account, no such fee shall be charged, unless the consumer has expressly elected to permit the creditor, with respect to such account, to complete transactions involving the extension of credit under such account in excess of the amount of credit authorized.

  • I contacted my card issuer and apparently the ability to go over your limit (with a fee, but apparently with the requirement that you could be asked to repay it right away) is a "feature" they could switch off. – Michael Jan 7 '15 at 22:19
  • The wording is strange since it is illegal now to charge a fee for for going over... but glad you could turn the "feature" off. – Sun Jan 7 '15 at 22:22
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The credit card system is old and highly distributed. Not all card terminals are on-line. Not all card terminals are even electronic. So it is virtually impossible for them to precisely enforce a limit.

In some countries there exist debit cards that only allow electronic processing with on-line validation (in the UK these are known as "solo" and "electron" cards) but I have never seen this for a credit card. If the bank trusts you enough to lend you money they trust you enough to use a payment system where they can only approximately enforce the limits.

2

Suppose you made a purchase from a merchant with an old-fashioned credit-card machine, that doesn't check your balance on-line in real time. The merchant could thus accept your card in good faith, even though the purchase put you over the limit.

I don't know whether any of these still exist, but I suspect the language in the agreement is boilerplate left over from when they were more common.

  • And even if they aren't in the stone age sometimes something goes wrong and they may decide to accept unprocessed charges rather than turn away the business. – Loren Pechtel Jan 8 '15 at 5:02
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How is a credit limit a limit if you can go over it?

Simple -- below the limit, you are guaranteed that transaction will succeed. Above the limit, it's possible that the transaction will succeed, or it may be declined. There is no guarantee. It may depend on your bank, the amount it goes over, and other factors.

I've gone over the limit many times; I know the bank can't charge me a fee for it because I have not opted in to the feature. The bank is free to decline it, but if they don't (and they often don't), then it's good.

  • It's not good if you want to use the credit limit for budgeting... over the limit, no more purchases for the month. Over the limit and purchase goes through, not so good, and they can apparently demand the overage immediately. – Michael Jan 6 '15 at 3:24
  • @Michael: I don't know what "immediately" means. It might just mean "at the next statement". I am not sure it would be legal for it to be due before that. – user102008 Jan 6 '15 at 3:34

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