As of February 22, 2010, there are new rules for going over your limit on credit cards. These rules were put into effect by the Federal Reserve to help protect credit card users. Along with rules about credit limits, the Federal Reserve also laid out additional rules to protect cardholders.
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In the past, credit card companies would make changes to your terms without notifying your first. This led to more fees and high interest rates, which caused many people to get into credit card debt that they could not handle. Credit card companies are now required to give you sufficient notice of any changes pertaining to your account.
New Rules for Going Over Your Limit
When you apply for a credit card, you are given a credit limit. This is usually based on your credit score and income level. In the past, if you made a purchase that would put you over your limit, the charge would go through but you would be charged a fee.
Many credit card companies would charge not only a fee, but also increase your interest rate.
The new rules allow you to have more control over your credit limit. If you would like your credit card to be approved for purchases over your limit, you must let the company know. If you allow over the limit transactions and you end up going over your limit, you will be charged a fee, although you can only be charged one fee for each billing cycle.
Under the new rules, if you do not allow them to approve a purchase over your limit, your card will be declined under that situation. If for some reason the charge is not declined and the purchase goes through, the credit card company cannot charge you the fee.
Other New Rules Regarding Credit Cards
There are a number of other rules set by the Federal Reserve in order to protect you. One of the rules covers your credit limits, fees, and rates. Another refers to payments and billing.
One of the new rules deals with what information the company needs to tell you and when. For example, now credit card statements need to show you what paying extra every month will do to the pay off time, as opposed to just paying the minimum payment on your credit card. You can also figure this out on your own by using the debt interest calculator through SmartMoney.
Opting Out of Over the Limit
In general, opting to be able to go over what your credit limit is will not be a smart idea. If you are not good at checking your balance regularly and knowing where your finances are in reference to your limit, you may get into financial trouble quickly.
When your balance increases, so does your monthly minimum due. Your credit limit was set up partly because it was what the credit card company thought you could handle. Once you increase that, you may find it difficult to pay your balance off.
Another big reason you do not want to go over your limit is the penalty associated with doing so. Most credit cards will charge you a fee, which may vary from $15 to $40. Some cards may even increase your interest rate.
The only reason you may choose to opt-in for over the limit approval is for security and coverage for the what-ifs. If you don’t have money in savings and you don’t have a lot of open credit, you may find yourself in trouble if you find that you need to charge something big.
Whether it is a medical expense, a car repair, or some other emergency, if you are approved to go over the limit on your credit card, you will have more access to credit and will be able to pay for it, while you would be in a bit of a bind without the approval. This however, is really only useful in emergencies.
Credit cards are very convenient and are great to have in many situations. If not used responsibly, however, they can lead to high debt and other problems. The new rules will hopefully help decrease these issues.
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