Know the variance between credit limit and available credit!

The account balance of a debt plays a prominent key to which the difference between the credit and credit limit is closely tied to. Credit limit is the total amount of credit available to a borrower, including any amount already borrowed.  A borrower’s credit limit may be raised after he or she exhibits timely and full repayments. However, having a high credit limit and multiple lines of credit may hurt a person’s overall credit rating. In these cases, new potential lenders can see that the applicant has access to a large amount of debt, which may lower the chances that this person will be able to repay his or her debts in the future. As a result, new potential lenders might be less likely to offer an additional source of debt. Available credit can be a key factor in a credit score, along with amounts outstanding from various lenders. A reasonable amount of available credit proves that the customer has successfully obtained credit lines in the past, and has the discipline not to use all credit available to him or her. If you try to spend more than your available credit, your transaction will be declined, unless you’ve opted-in to have over-the-limit transactions processed.

Many credit card companies allow borrowers to increase account balances just beyond credit limits, provided that borrowers agree to this in writing. This sometimes is a result of charges and sometimes a result of interest and fees. Most credit card companies charge stiff penalties for accounts with balances above the credit limit, again, provided the borrower agrees to this in writing. In times of need, consumers may be tempted to sign any document that gives them access to needed cash.

The amount is mandated to the credit card companies which they are allowed to charge for credit card accounts over the credit limit. The charge applied may not exceed the amount the account is over the limit. Individuals who have agreed to accept fees for exceeding credit limits have the right to change this at any time by notifying the lender in writing. This does not apply to transactions made before opting out of over-credit-limit fees. Also, the lender is more likely to refuse transactions that take an account over the credit limit after a borrower has opted out.

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Source: Secondary