If you have a credit card you probably know that when you go over the credit limit bad things happen. Exceeding the limit can result in fees, increases in your interest rate, and dings on your credit report, and one instance of going over your credit limit can result in all of your credit cards increasing their interest rates. Once this process begins, debtors who before the late payment were able to meet their monthly financial obligations may find themselves unable to continue because the increased interest rates have resulted in higher monthly minimum payments.
This situation is unfortunate, but the debtor has to accept some of the blame. Low interest rates are given to people that pay their bills on time. Once you start making payments late, it is understandable that you may not qualify for the lower rate any longer. But sometimes it isn’t the debtors fault. Sometimes the credit card company makes changes to the account without prior notice causing the debtor to go over their limit without knowing.
Eight years ago my wife and I were planning a trip out of the country. I contacted one of my credit card lenders to let them know we would be out of the country and that we intended to use our card while on the trip. I wanted them to know in advance so that if they saw unusual charges they would know what is going on. At the time of this trip I had had this card for six years during which time our credit limit stayed the same and our income actually increased. The day after this call the credit card company without notifying us dropped our limit to a few hundred dollars above the current balance. I just so happened to get online that day to pay the bill and noticed the change. I contacted the credit card company to ask why our limit had dropped and they informed me that they had reevaluated our creditworthiness. This didn’t make sense to me because since applying for the card our income had increased significantly, we had never been late making payments, and we had been at the same job several years. There was no reason to make this change.
A few years later I started working as a bankruptcy attorney, and the reason this happened became clear to me. I met with many clients who explained that their credit card lender dropped their limit without notice causing them to go over their limit. The result was that every one of their lenders increased their interest rate, causing their monthly payments to double and forcing them into bankruptcy. The problem is that this dirty trick isn’t illegal, so debtors need to take precautions. Check your account regularly to look for changes and don’t let your balance exceed twenty-five percent of your credit limit.