Your credit card spending limit does not exist and it never did. In spite of the fact that your credit score is largely dependent on your spending limit (relative to your debt), there really is no such thing as a spending limit. Your credit card will rarely be declined in you go over the spending limit for the simple fact that your credit card issuer will use a credit card overdraft to make money off you. An overdraft gives it license to, essentially, change the rules:
1. FEES: Unless you specifically request that your credit card account be frozen if you reach that spending limit, you can charge as much as twice your spending limit (in some cases even more), for a fee, of course. Credit card overdraft fees can be as high as $50 for each charge made over your spending limit. As such, if you use your credit card for a coffee in the morning, your lunch, and your subway pass or toll every day before you realize an overdraft has been made, you could be charged as much as $150 ($50 x 3) each day!
2. DEFAULT RATE: In addition to an overdraft fee, your credit card account will convert to a default rate (as high as 30%-40%). Even if the problem was just that a transaction went through before your payment was processed, you are now stuck with this default rate for the rest of your time with that credit card company. Further, if you have other accounts with your credit card issuer, a default rate may be applied to those as well.
3. REWARDS: In most cases, you lose any rewards points you have accumulated to that point as well. While you may have the option to buy them back (many credit card issuers offer you that option), that is another cost and in most cases the rewards are not worth it.
To make matters worse, unlike a banking overdraft, you are usually not informed of a credit card overdraft. You have to check your statement. If you are someone who never reviews your statement, you could have already gone into overdraft and not even know it!
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Credit card protection laws don’t apply to all cards, so be careful of which credit card you carry!
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New legislation before Congress aims to reduce the fees merchants pay to credit card companies on every transaction.
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