Going over your credit card limit will not only hurt your credit score, but it could cause future lenders to see you as a high risk. This could result in them charging you a higher interest rate on your credit card which will not be ideal if you need the card to make important purchases and payments. There are ways that you can strike a balance on your credit card without going over its limit.
Why exceeding your credit limit is not good
There is no doubt that Aussies love their plastic. Credit cards are not only convenient, but they help us make those important purchase. However, the amount of debt that we have accumulated on our credit cards over the years, $52.5 billion to be exact and $32.9 billion in accruing interest, shows that we struggle to manage the power of our swipe.
For some, the convenience of a credit card can be a vice making it too easy to spend money on things that they do not need. This can result in spending beyond your credit limit which can hurt your credit score. The other common mistake is to take lightly the monthly repayments which can be pushed high by adding everyday expense to the card. In order to strike a balance with your credit card, you shouldn’t exceed more than 30% of your credit card limit.
Less is more
The temptation of having a credit card that can have its limit increased can be tempting. If you don’t need the increase, then it is best to stay away from such cards. Knowing the type of spender you are is a start to finding a credit card that will match how you shop. Having a budget in place can also help you find your sweet spot without exceeding the credit card limit.
Avoid using the majority of credit that is available to you
The past is a good teacher. If you have struggled with making payments on previous credit cards, then it’s best not to take the offer of increasing your credit card limit. By not using the majority of the credit that is available to you, you can gain favour from future lenders who will give you a low interest rate
Keeping up with your credit report
There are two things that you need to keep tabs on to ensure that you are not building up a bad reputation when it comes to your credit card spending. Getting a hold of your credit report is one way. This will show you the history of your credit card wheelin’ and dealin’ along with any outstanding loans or accounts that need to be paid off. Life gets busy, and sometimes we can forget that there is a certain bill that needs to be paid off. Your credit report will highlight this for you, and you can set automatic monthly repayments through your bank to make sure it gets paid off.
Your bank statements are the second part you need to constantly check to see where you keep spending money that could be used better elsewhere. You will be surprised how many ‘small purchases’ can eventually add up and make the difference between you paying more on your credit card bill at the end of the month.
A silver lining in our dark debt cloud
If there is one thing that Australians are getting better at, it is paying off their debt. Recent credit card limits that have been released by the RBA credit card statistics show that Aussies are using a smaller percentage of their credit card limits. One way to make sure that you stay out of debt is by making the monthly repayments. If it is possible, go beyond the minimum repayment that is expected from you and pay extra to quickly cover your payments.