Over-limit fee: What it is & how it works
Quick Insights
- Over-limit fees occur when you exceed your credit limit.
- Your over-limit fee typically does not exceed the amount you’ve overspent.
- Over-spending and going above your credit limit can come with additional consequences.
Have you ever wondered what would happen if you try to make a purchase with your credit card after you’ve reached its limit? Possibilities include having the purchase declined, or having the issuer approve it as an over-limit transaction and charge an over-limit fee.
What is an over-limit fee?
Over-limit fees are charged by credit card issuers when you go over your credit limit.
Let’s say you’ve reached a balance of $2,500 using a card that has a credit limit of $3,000 and you make a new purchase that pushes you to $3,100. You would be $100 over your limit and may be charged an over-limit fee.
How over-limit fees work
When you make a purchase that exceeds your credit limit, you may be charged an additional fee as a penalty. This must be stipulated on your card’s terms and conditions.
Over-limit fees occur when you as a consumer agree to these fees when getting your credit card. While it can be important to review these details, you still may find yourself exceeding your card limits and charged an additional over-limit fee.
However, mistakes happen, so if you think you were charged wrongly, you can dispute this with your issuer by contacting them directly.
How much is an over-limit fee?
The Credit Card Accountability, Responsibility and Disclosure (CARD) Act limits how high over-limit fees can be. They may, in some cases, only reach as high as the amount that was exceeded. For example, if you exceed your credit limit by $100, you could expect an over-limit fee of $100 at the maximum, though the amount may be less than that. Nevertheless, not all credit card issuers charge this fee.
The consequences of going over your credit limit
Not only could you face over-limit fees, exceeding your credit limit could result in additional consequences including, but not limited to:
- A declined transaction
- A request by your issuer to pay your fee immediately
- An increased credit utilization ratio (the amount you spend against your total available credit limit); the higher this is, the higher your chances are for hurting your credit score
- If you consistently go over the credit limit, you might lose your card’s rewards or have your card canceled altogether
- Higher minimum payments
In conclusion
Credit cards offer many benefits, but it can be important to budget wisely so you don’t face the consequences of accidentally overspending and running into trouble with your credit card issuer. Keeping your credit utilization low may help support a healthy credit score and avoid exceeding your credit limit, which could result in over-limit fees. If you have healthy financial habits but feel you need a higher credit limit, you may be able to ask your issuer for a credit limit increase.
