Life has limits—you gotta obey ‘em
During my freshman year of college, I got my first introduction to the reality of limits. Speed limits.
On my way back to Texas A&M University 
from San Antonio after Thanksgiving break, I didn't have a care in the world as I drove north on Highway 21. Belting out Chumbawumba's "Tubthumping" (or some other equally awesome ‘90s song), I hardly noticed my speedometer as the distance between me and College Station decreased.
Until I reached the thriving metropolis of Dime Box, Texas , that is.
Suddenly, I was jolted out of my temporary euphoria by the unforgiving sound of police sirens coming from behind me. My eyes darted to the rearview mirror to confirm my horror—and then down to the speedometer to see what the damage was. I was going 82 in a 70 mph zone.
You see, according to the latest U.S. Census , Dime Box has a population of 381 people—at least one of whom is a police officer. And he was clearly on duty as I sped through his town that day. Despite my best intentions, I had gone over the speed limit, and I was introduced to the harsh and expensive consequences of doing so.
Another adult privilege that comes with a clearly-defined limit is a credit card. Just like speed limits, it is important to know your credit limit (also known as a credit line) and be sure not to go over it. Your credit limit is the maximum amount of money your credit card company is willing to lend you, and it is specified by your "Card Agreement and Disclosure." If you go over your limit, you will likely be charged a fee (again, this should be specified by your card agreement).
Let's do a little credit limit math: Say you have a $500 credit limit. This month you charge $200 on your credit card for essential purchases such as gasoline , groceries and an oil change . If you pay off $150 of your balance on your statement due date, you have a remaining balance of $50 and you are $450 under your credit limit.
It is important to note, however, that credit cards vary in terms of when unpaid balances begin to accrue interest—so you need to monitor your account to see what your actual balance and remaining credit is at any given time.
Confused? Check out the "Young Adults" section of the Hands on Banking® program—Wells Fargo's fun, educational resource to help you learn about financial topics such as this!
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Comments (13)
Found in Budgeting, Cars, Credit cards, Financial education, Overdraft protection, Paying, Preparing, Student loans, Wells Fargo Bank
Comments
Kathy
Do you really have to obey them? I have actually had a card for 1 year, missed my 4 out of payments during the 12 months during that year and guess what. Once I called and talked to them they waved all of my misc fees and even gave me a larger credit limit!! So do you really have to obey them?
From my experiences, you don’t have to.
Posted by: Obey? Do you really? | July 19, 2007 06:31 AM
Nice post Kathy. Though I'm not sure 'Chumbawumba' and 'awesome' go together.
Posted by: Monty | July 19, 2007 12:18 PM
Hi there obey! As a general rule, you do have to abide by the Terms and Conditions laid out in your Cardholder Agreement. Now I'm not saying there aren't exceptions like the one you described, just like I probably could have fought a little harder to get my speeding ticket removed from my record. However it is more important to establish a pattern of responsible behavior so you build a strong credit history - that way in the future lenders will be willing to work with you and will give you more competitive interest rates. I'm going to be talking about credit history and some of the things that go into it in future posts, so stay tuned!
Posted by: Kathy Barris | July 19, 2007 03:11 PM
Agree to disagree, Monty, agree to disagree. :-)
Posted by: Kathy Barris | July 19, 2007 03:12 PM
Kathy,
I agree with you and it is good to abide by rules such as speed limits and Card Holder Conditions, especially as you first build your credit. Being a responsible adult; I myself, abide by all trafic rules. What?!? No boy band mention? Backstreet Boys, n'Sync, 98 degrees? Those were some good rock-out toons during my early college years and perhaps recently too.
Posted by: Bye, Bye, Bye | July 19, 2007 11:58 PM
Kathy,
I am still confused, how does it work? If I get my charges taken off and then still pay off the credit card. The card comes and gives me a larger credit limit? How does that hurt my credit history if it gets paid off?
Thanks for your help.
Posted by: Obey? Do you really? | July 20, 2007 01:02 AM
Agree with Kathy B. on establishing a pattern of responsible behavior with the Credit Card. Credit records with the Credit Bureaus last a lifetime and are very detailed. I once was asked to give my permission for a prospective employer to review my credit reports as part of a job interview process. Good credit behaviors are now a judge of character for jobs, let alone more credit. Good Luck!
Posted by: Rich J | July 20, 2007 08:55 AM
Bye, Bye, Bye - Ah yes, the boy bands. I love them all!
Posted by: Kathy Barris | July 20, 2007 01:28 PM
Obey, without knowing all of the specifics of your situation--or the policies of your credit card company--it's hard to say how this payoff pattern may affect your credit rating. From your description, if your credit card company is rewarding you with a larger credit limit for paying off your charges in full and on time, that's a testament to your responsibility and should be reflected in your credit rating over time. I recommend that you research the policies of your card issuer, or if you'd like you can use the "Feedback" button to send me a message and we can look into your situation in a little more detail. Thanks!
Posted by: Kathy Barris | July 20, 2007 01:49 PM
Kathy THANKS SO MUCH for the help and I will definitely research more and get more advice about this. Thanks again.
Posted by: Obey? Do you really? | July 26, 2007 04:32 AM
Hi Kathy,
Thank you so much for all your great advice regarding my credit. It has been very helpful and I took your advice to further research the terms and conditions of my credit card. You are correct in that it seems they rewarded me since I am always able to pay my balance off in full. After this research I realize the importance of building and maintain strong credit from an early age. Thanks again for educating me on all this and it is much appreciated!
--Obey?
Posted by: Obey? | July 26, 2007 04:36 AM
This was about as useless a blogging as I have ever come across. Sure a nice story, about the cob, and very well written. I do not hink that the 2 are analogous though. Who does not know their spending limit. Why is it a limit? Can you actually exceed it, and if so what are the consequences? So yup, a thouroughly useless blogging. Nice try though.
Posted by: Naz | August 24, 2007 11:12 PM
Hi Naz,
Thanks for your comments. You'd be surprised how many customers don't know their spending limit on their credit card. To answer your question, there are limits because lenders are taking a calculated risk when they loan money ... especially on revolving credit like a credit card. For example, if you have good credit history, that's a signal to lenders that you pay back your debts and you're a lower-risk customer than someone whose credit history isn't as good as yours. Generally as a result, you would probably get a better (higher) spending limit. If you exceed your limit, there are usually fees associated with that ... you would have to look at your account agreement with your credit card issuer to get details on what occurs on your specific account when you exceed your limit. Hope you find this information useful =)
Dinna
Posted by: Dinna Martinez | August 28, 2007 10:56 AM