The purpose of a credit limit is to limit the exposure of the issuing bank if you default on the credit line.

The purpose of letting you exceed that limit is either “as a courtesy to the customer” or “to make money in fees and interest” depending which side of the equation you are on (or how cynical you are).

Also a debit card note: at some banks you can request that they not allow you to overdraw the account with the debit card, so that you will actually be declined if the funds are not in the account. You can still run into trouble with checks and order of transactions, but the worst of the problem can be addressed. (I still don’t like them though.)

- Transactions that do not get authorizations (small amounts, the system is down, whatever…)
- Timing of transactions and authorizations. I could be wrong on this, but I believe that when they get an authorization, it merely puts a hold for that amount on your credit line. If that hold expires before the actual billing goes through, then you appear to have unused credit…. I’ve had charges take over 3 weeks to get posted to my account (especially with international travel).
- The credit issuer chooses to honor the transaction.

The point I was trying to make was that people are generally not able to freely exceed your credit limit at will, but rather that there are occasional circumstances where it happens. I certainly agree that the latter of the 3 is clearly aimed at getting more $$ from the consumer.

By the way, this brings back to mind something that I was very surprised to learn a while back.

Debit Cards… these “wonderful” financial instruments that dip directly into your checking account when you make the purchase. They still go through the process of getting an authorization for the transaction and all, and one might be lulled into the FALSE impression that if you don’t have the money in the checking account, the transaction will get rejected. Once again, the banks can choose to allow the transaction and overdraw your account…. similar to them choosing to pay an overdraft check and then hit you up for overdraft fees.

I personally hate debit cards, I have never used one and never will… I’d much rather use credit (OPM) and pay it off when the bill comes in.

@EJD - That’s just my point. What IS a credit limit for? You can most definitely charge things after you’ve hit that limit (that is, the transaction will go through), otherwise an over-limit fee would be a moot point. The fact is, you CAN exceed your limit. So what is the rationale behind a credit limit, functionally?

Also, as Mrs. Micah pointed out, they may not charge a fee for exceeding the limit but in the fine print it is entirely possible that it would trigger a higher interest rate.

I wonder if the bank has hidden things if you go over your limit–like automatically withdrawing it from a linked account, or charging a higher APR. Or maybe they just know they’ll enjoy all the interest since you’ll have to carry a balance.