Over Your Credit Limit? Get Ready For Higher Interest Rates!

Next time you brush past your credit limit you may get hit with more than a hefty over-the-limit fee. The Red Tape Chronicles reports that credit card companies are starting to slap exuberant spenders with penalty interest rates. Compounding the danger to consumers, creditors are simultaneously rushing to slash credit limits.

Discover is the new cheerleader for penalty APRs and plans to asses rates of 31% on top of their $39 over-the-limit fee. Other creditors are rushing to get in on the action, too:

One Chase Platinum Visa offer indicates the cardholder’s rate may increase if “you exceed your credit line.” At Bank of America, a cash reward card contains the following provision: “Each time your … account balance is over the credit limit, we may increase each of your account’s Standard APRs up to the default rate. “

Getting hit with the default rate is a credit card user’s equivalent of banishment – and it’s a costly one. A consumer with a $10,000 balance and a 15 percent interest rate who pays the minimum payment each month would pay $2,800 in a year and still owe $8,598 on that balance. But a consumer paying 31 percent interest would have to cough up $4,047 to meet minimum balance payments during that same 12 months, and yet would fall farther behind, with a remaining balance of $8,891.54.

Remember, in that example, nothing has changed but the interest rate. (If you’d like to run your own nightmare scenarios, BankRate.com has a handy calculator).

Brushing your credit limit can also impact your credit score, which considers what percent of your credit limit is actually used. Next time you’re planning for a large purchase or a series of small mistakes, remember that your ideal credit utilization is somewhere around 10%.

New way to hike credit card rates [Red Tape Chronicles]
(Photo: samwilkinson)
PREVIOUSLY: Credit Card Companies Slashing Credit Limits

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  1. TechnoDestructo says:

    Can banks lower your credit limit below your current balance (even if it is under the limit) in order to trigger a fee?

    Because if that is even just not-very-illegal, I can definitely see some banks (chase) doing that, seeing as how they’re already playing musical-payment-dates to force fees. (And lying about it.)

  2. Theyve been doing this for years
    @TechnoDestructo: No, not legally. If you miss a payment however, they will lower it to just above your balance so another months interest will put you over-limit. Thats why I feel so bad for people in credit card trouble. Miss one payment and you get hit with potentially $100s in fees.

  3. Me - now with more humidity says:

    And once you get hit with the default rate on one card, all your cards will go there, too.

  4. FromThisSoil says:

    Good thing the limit on my card is $10k and I have a low balance on it (and one that will be gone shortly).

    If I ever get myself into $10,000 worth of debt on a credit card, forget the fees, just shoot me!

  5. howie_in_az says:

    Holyjeezus 31% interest.

    Why not phone up the credit card company and cancel the card? Pay off whatever balance you have and then make use of your debit card, or get a secured credit card to put ‘emergency’ ($300-$500) funds on it? Sure you won’t get any interest on the secured credit card, but with most of the online savings accounts being at 3%, you’re not losing all that much.

  6. modenastradale says:

    This happened to me. An unauthorized charge pushed me over my limit and I was immediately sacked with 32%. I still haven’t managed to get the rate lowered even though I didn’t authorize the charge. (I did, however, make the mistake of working this out through the merchant. If I had just done a simple chargeback and said F*** YOU to the merchant, the whole thing could have been undone.)

    I’m just going to cancel that crappy card.

  7. ConsumptionJunkie says:

    Higher interest rates is old news.

    Banks are now imposing high fees ($95 for an Aventium card) for new applicants. They are called “program” fees.

  8. modenastradale says:

    @modenastradale: Wow. Freaky. Problem fixed! Just, uh, magically. As of today. With no effort on my part.

    Was this the Consumerist’s doing? ;-)

  9. mduser says:

    That’s interesting, since my credit company just raised my limit, and I just rolled over my balance to a new card anyway, so it makes me look a bit better.

  10. Concerned_Citizen says:

    I never understood why credit cards are allowed to alter your interest rate on past purchases. Making it harder for someone to pay you back by altering the terms later is loan shark behavior.

  11. Konrad says:

    GOOD!
    if you go over your limit you SHOULD get higher interest rates. (This does not apply to you folks who had your card used by someone who isn’t you).
    Seriously, does anyone expect people to get any better with credit cards if using them doesn’t become more expensive?

  12. idip says:

    Ugh, I’m totally in this hole right now. Sadly I work retail and my hours have been WAY cut back. Like, I went from 35+ hours a week to 9 hours! Been like this for a while and it doesn’t look like it’s going to get better at all.

    All my cash is going to my car/gas just to work the credit cards took a backseat and hit some high interest rates already only making my hole deeper. Ugh, I can’t even see the sun anymore. Between thinking, “How am I going to pay my bills this month” and “Why hasn’t that prospective employer called me for the results of that job interview” I don’t know how I make it through each day.

    No wonder people just give up, the stress is too high for making that mistake.

  13. hegemonyhog says:

    I had a Chase card which went overlimit due to a misprocessed payment on their end. On a $250 balance, I was charged $96 in fees and not only did my interest rate go from 14% to 29.99%, but my limit was lowered to $300.

    I immediately got the penalty removed…but they kept the interest rate and lower limit. I paid off the entire balance and haven’t used the card since. I can’t image what would happen if you had a card with a more substantial balance on it.

  14. @hegemonyhog:

    I’m not entirely convinced Chase credit card’s billing department knows what the hell they’re doing. I carry a balance on my card but I make 3x the minimum payments on it.

    In the 3 years I’ve had the card, I’ve used it twice in the last 18 months, each time they’ve tried to raise the limit but a phone call gets them to lower it again.

    In November they raised my rate up 2% and then in December they dropped it those same 2%.

  15. milk says:

    Protip: be responsible and actually look at your balance.

  16. AdamthePugh says:

    Be sure that you do not have multiple cards with the same company that are Brand names. Chase owns Disney cards, AKC Cards, and Air travel cards that only have the Chase name in small print. Some people try to call in and transfer their ‘evil’ Chase card balances to their more understanding Disney card only to find out it is the same company and that it is not possible to switch.

  17. UnicornMaster says:

    Yeah, I had a BofA credit card a few years ago when money was tight. I forgot to pay my bill one month and not only got a $35 free, but they raised my interested rate to 25.9%. I had a long conversation with CS and was told it was standard policy and would last for no less than 6 Months, as long as I’m not late or over the limit. Needless to say I paid off my credit card and NEVER use it again.

  18. stinerman says:

    @idip:

    I know the feeling.

    I was unemployed for about 7 or 8 months and I just landed a $7/hr part-time job. Luckily, I have my fiancée’s earnings to help me along, but both of us have student loans to pay back in the near future and a lot of credit card debt.

    It’s very stressful.

  19. harshmellow says:

    I am out of credit card debt, so I don’t know the answer to this. Can’t you just tell the credit card company not to allow you to go over the limit? I thought a limit was a limit–whatever happened to declining the card when it will put you over the limit? Of course, CC companies don’t want to do this because this allows them to slap people with fees and raise their interest rate through the roof. They (and banks) live for that shit.

  20. Bryan Price says:

    Last time our card ran up to the limit, they proceeded to raise our limit.

    Then again, we pay off our card every month, the total due was $2k, I paid the full limit when I did pay it, I paid it in person. And it still took almost a week and a half to get the payment posted. I wasn’t thrilled with the charges that I could see piling up online as I waited for the payment to post. But it got posted on the day I dropped the check, and all the charges were backed out. I wrote a polite letter to the president of the credit union to let him know that I was unimpressed at the speed the payment was handled, but happy that everything turned out well. I’m just glad we weren’t looking for credit elsewhere at the time. And before the president even had a chance to read my letter, VISA upped our credit limit for us.

    And that was the last time my wife used our plastic to pay for work stuff!

    But the time between statement and due date is getting absolutely ridiculous. It boils down to 10 business days on my statement I’ve noticed.

    I’m also dealing with a credit union, which I think makes things a lot better for us.

  21. Bryan Price says:

    OT and meta. Weird, the preview had things paragraphed out, but it doesn’t show that way after I hit submit.

  22. Mr. Gunn says:

    The overlimit penalties have never made sense to me. I understand late fees and so on, but isn’t using their card what you’re supposed to be doing? Why would they penalize you for doing it too much? It’s not like an overdraft at a bank; they actually make more the more you spend(barring defaults, of course), so the whole deal doesn’t make sense.

  23. Mr. Gunn says:

    Better to just take an adversarial mindset and keep an eye on things constantly, especially now.

  24. I have and regularly use the card pictured in the story, “>Clear from American Express. It’s pretty much the least evil card in the world (and therefore the most irrelevant card to picture):

    • no fees
    • 31-day grace period
    • 1% cash back delivered by $25 American Express gift cards
    • exceeding your limit will not trigger the default rate

    I searched really hard for anything bad in the terms, but came up empty.*

    * After letting the internet search harder for me, I found one fee: foreign-currency transactions have a 2% fee. Also the default rate for missing two payments in 12-months is pretty high. Don’t do that.

  25. KarmaChameleon says:

    @hegemonyhog: Call Cardmember Services and ask for your old APR to be reinstated, explaining what happened. CSRs are required to put detailed notes on accts, so they should have record of the previous fee removal due to Chase error.

    If the frontline person gives you guff (which they might, if they’re a noob), ask for a transfer to CCU. That is the supervisor hotline. Don’t ask for them right off the bat because you’ll just end up having to repeat yourself.

    For an APR request like that, the frontline person has to submit a request for a separate department to look into it, they have no ability to change your rate (which is why those “ask for a lower rate” tips that are always on here are complete bullshit). That dept will write you a letter within 7-10 business days with the decision. Most likely you will have to end up at CCU, and they will handle it.