Living with credit, Protecting yourself

Even without embarrassment, don’t max out credit cards

Connie Prater

It was a source of embarrassment, awkwardness and dismay. You went to a restaurant with friends and family and graciously offered to pick up the check. But the waiter strolled back to the table with a disappointed look on his face and your credit card in his hand.

“I’m sorry, but this card has been rejected,” he says. Your companions around the table stare and you can’t meet anyone’s eyes as you go shifting through your wallet for another credit card that perhaps will go through.

Sorry. It just doesn’t happen that way any more.

Maxed out? No problem
Rejecting maxed out credit cards has gone the way of carbon paper and the impression machines (remember those?) when processing credit card transactions. When was the last time your credit card was rejected when you made a purchase? Of course, for many of us maxing out a credit rarely happened. Those with more experience in this area probably still recall the embarrassment — maybe the outrage too.
Credit card companies have found a way to conveniently spare us from the sting of rejection. When you reach your maximum purchasing level (the credit limit), it appears as if the sky is the limit. The transaction goes through.

Rejected no more, but…
The only problem is that exceeding that limit triggers a penalty — a fee added on to the bill for every month that you’re over the limit. To a creditor, going over your limit says something about your ability to manage money and stay within a budget. It says you may be a greater credit risk.

It may also trigger a default — a circumstance that could start a domino effect of interest rate hikes not only on the maxed out credit card but others in your wallet. An industry practice called “universal default” — roundly criticized during a Dec. 4 U.S. Senate subcommittee hearing — cause interest rates on all of your credit cards to spike, sometimes above 20 percent.

The senators say even though credit card companies have the power to reject purchases that exceed a customer’s credit limit, many issuers have stopped doing so. This may have something to do with the revenues that are now generated from over-the-limit fees.

Holiday shopping tip
So word to the wise during this holiday shopping season: Keep track of your spending limits and stay well below the max. You’ll be spared the rejection — and the headaches.

If you’re nearing your credit limit and want to make a purchase on the credit card, call the card issuer before you buy and ask them to increase your credit limit to accommodate the extra spending.

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