Here’s something new to watch out for in the credit card world.
By now, it’s a fairly well known fact that credit card issuers are cutting credit lines, but doing so may be creating unintended consequences.
Apparently, some card issuers are cutting credit lines so close to the existing balance that some cardholders are going over their new limit, and then being forced to pay over-the-limit fees.
The way it works is fairly simple. Say a cardholder has a balance of $4,950 and their new balance is dropped from $10,000 to just $5,000.
Then they are assessed a finance charge that exceeds $50, pushing the total overall balance above their new credit line.
At that point, they’d be deemed over their limit by the card issuer, and subsequently charged an over-the-limit fee as a result.
So not only are customers stuck paying a one-off fee, but they’re also hit with a credit score ding, making it increasingly difficult to shift the debt to another card.
If unable to move the balance, the cardholder would be forced to make larger monthly payments to stay out of the proverbial danger zone and avoid any more overages.
That’s why you should always have a backup plan, especially if you like to (are forced to) carry a balance.
My general recommendation is that you transfer balances to your existing credit cards that have zero balances, instead of opening a new credit card unnecessarily for this purpose.
Read more: How credit card companies make money.