Over-limit fee: What it is & how it works

Highlights

• Over-limit fees occur when you exceed your credit limit.
• Your over-limit fee cannot 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? One option is that your purchase is denied. Another possibility is that your issuer allows you to overspend but you could be charged an over-limit fee, a credit card charge that occurs when you go above your card’s credit limit. Let’s dive into more detail about over-limit fees below.

What is an over-limit fee?

Over-limit fees are just how they sound—a fee charged by credit card issuers when you go over your credit limit. They occur when you are allowed to exceed the amount allocated by your credit card issuer.

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 will be charged an additional fee as a penalty for going above the set limit. 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; that’s why it’s important to review the terms and conditions that come with your credit card. While it’s important to review these details, you still may find yourself in a position—either through negligence or an emergency—where you exceed card limits and are forced to pay over-limit fees in addition to paying off your credit card balances.

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 the over-limit fees can be. They can 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
• Have higher minimum payments

Recap

Credit cards offer many benefits, but it’s important to budget wisely so you don’t face the consequences of accidentally overspending when allowed and running into trouble with your credit card issuer. Keeping your credit utilization to about 30% or less is a great way to maintain 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. Having a good credit score may improve the odds of being improved.