Going over your credit limit can be frustrating, especially when one of your credit cards gets declined at the store checkout counter. Without another debit or credit card on hand, you may not be able to complete your purchase, and that means leaving the items you came to buy behind. But that's just the start of the problems that can arise from exceeding your credit card limit. These can include fees for exceeding the limit and dings to and potentially more serious impacts on your credit score.
What is a credit limit
A credit limit is how much a card issuer is prepared to let you borrow toward a secured card or an unsecured card balance. With secured credit cards, the amount of money you put down in cash usually determines your limit. With unsecured credit cards, your limit is set when you receive the card in the mail and is specified in the issuer's terms and conditions.
Among those terms is that if you go over the limit on your card, the card issuer can charge you an over-limit fee. This means paying a fee in addition to the amount required to get the card balance back under the limit.
What are over-limit fees?
If you go over the limit on your credit card, fees cannot be higher than the amount you went over your limit—so if you spent $35 over your limit, the fee cannot exceed $35. According to current federal law, card issuers can issue one over-limit fee per billing cycle. However, it is more typical for them to simply decline charges that go over the limit.
How much can you go over credit card limit?
How much you can exceed your credit limit mainly depends on the credit card issuer's terms and conditions. Over-limit protection is a benefit that some credit issuers offer. This mitigates, but does not eliminate, the risk of temporarily exceeding your limit.
Negative consequences of going over your credit card limit
Many cardmembers go over their limit for a variety of reasons—a lost debit card that requires using your credit card while you await a replacement, large and unexpected expenses such as a major car repair or medical bill, or other life events. Regardless of the reasons why it happened, the important thing is making a payment as soon as possible to get back under the limit and understanding the full implications for your credit score if it happens repeatedly.
As we've already mentioned, the first consequence of going over your limit besides the card getting declined for further purchases can be a fee.
A further consequence is the negative impact this could have on your credit score. This is particularly the case if the credit utilization of the limit-exceeded card has been high for multiple billing cycles. Your total credit utilization determines about 20% of your credit score, so going over the limit on one card can add to the negative reporting to the credit bureaus.
But the worst potential consequence of exceeding the limit on your card, especially if it's a repeat occurrence and you are unable to pay any applicable fee and reduce the balance, is the issuer invoking provisions that can raise your interest rate.
According to the CARD Act of 2009, the credit card issuer must give you 45 days' notice before raising your interest rate. It's important to know that routinely exceeding your credit limits on not just one, but multiple cards, can lead to higher interest payments.
How going over your credit limit can affect your credit
Going over your credit limit usually does not immediately impact your credit, particularly if you pay down your balance to keep the account in good standing. However, an account that remains over its limit for a period of time could be declared delinquent, and the issuer could close the account. When this happens, you will likely be left without your card but still owe the unpaid balance. A closed credit card account will also be reported to the major credit bureaus, and that could have a negative impact on your credit score.
How to avoid going over your credit limit
There are several practices that can keep your credit score healthy and reduce the likelihood of exceeding your credit card limit. These include:
- Using a debit card to make purchases if you don't need a credit card to cover routine expenses or are not accumulating rewards points for regular purchases.
- Implementing autopay from your debit to your credit card account.
- Sticking to a budget when making credit card purchases and carefully keeping track of billing cycles and payment dates online.
- Asking your card issuer to raise your card limit. Having a higher limit combined with careful monitoring of your spending habits can make exceeding your limit less likely.
- If paying off the balance on a card that's approaching the limit or substantially paying down the balance are not options for the moment, you could take advantage of a balance transfer offer. This can give you some relief and time to either increase your income to pay down debts or come up with a plan to reduce your credit utilization.
Following these practices can help you avoid going over your credit card limit and maintain healthy balances moving forward.