What Happens if You Go Over Your Credit Limit?
You’re at the grocery store. The total comes out to more than you have available on your credit card. What do you do? Do you put back essential items? Or do you run your card anyway and risk going over your credit limit? What are the consequences if you choose the latter?
Going over your credit limit can be prevented by building a budget and sticking to it. Sometimes, though, it’s unavoidable. It’s not the end of the world, but it does need to be addressed. Chronic overspending can lead to a debt cycle that could spiral out of control if you’re not careful. This article will cover what happens when you go over your credit limit, how to avoid it, and when it might be appropriate.
What Is Your Credit Limit?
A credit limit is the maximum amount of money a financial institution will let you borrow. That’s exactly what using a credit card is: borrowing money from Visa or Mastercard or whoever to buy things now that you’ll have to pay for later — with interest.
For a secured credit card, your credit limit will be, at minimum, the amount of money you gave to the company to secure the card. For an unsecured credit card, the credit card company determines the credit limit based on your creditworthiness. It’s up to the credit card issuer to decide how to determine creditworthiness, but for example, American Express uses personal income and expenses, income to debt ratio, length of credit history, credit history and current limits on other active credit cards. Other credit card companies use similar metrics.
You can find the credit limit for your specific card by logging into your online account. Many issuers will show your credit limit on your dashboard. You can also find it on your credit card statement.
What Happens if You Go Over Your Credit Limit?
Now that you know what a credit limit is and how to find yours, let’s explore what happens if you exceed your credit limit.
Your Account Might Incur Fees
The consequences of going over your credit limit depend on whether or not you have opted in to an over-limit protection program. The Credit CARD Act of 2009 protects the cardholder from charges for spending over their limit unless they have chosen to opt in to an over-limit spending protection program.
Over-limit spending protection programs allow over-limit charges to go through for a fee. The CARD Act also restricts card issuers to only charging over-limit fees once every two billing cycles for each transaction over your limit. These fees are usually between $10 and $35, but no more than what you’ve spent over the limit.
Your Card Might Get Declined
Normally when a card is declined, it just means that transaction is not allowed. It is inconvenient at best, but if you don’t have another form of payment, it can be embarrassing.
Some places, like hotels and car rental companies, place holds or blocks on credit cards for the estimated total amount of the bill. If you have a low available balance on that card, the hold might cause you to spend over your credit limit.
It Could Affect Your Credit Limit
Spending over your credit limit can lead to the card issuer lowering your limit. This is more likely to happen if your high spending is accompanied by late payments. The card issuer may think you are in financial trouble and lower your limit to reduce their risk.
The credit card company doesn’t even have to let you know that they are lowering your limit unless it would cause you to incur over-limit fees.
Your Interest Rates Might Go Up
Credit card issuers can raise rates after 60 days of non-payment. The new rate won’t affect any balance carried on the card before the issuer made the change, but it will make it harder to pay off any future purchases. Going over your credit limit will also affect the interest rate on any new cards you apply for.
Your Credit Issuer Might Close Your Account
Every credit card contract says that the card issuer or cardholder can close the account at any time. Chronic over-spending will lead to some issuers closing the account. A closed account doesn’t mean that your balance will go away. You would still have to pay what you owe on a closed account, but as the balance shrinks, you won’t have access to the credit that was there.
A closed account will affect your age of credit and it might be difficult to open a new credit card if you have several negative remarks on your credit.
Might Lower Your Credit Score
The consequences of going over your credit limit can compound to reduce your credit score significantly, making it harder to get credit in the future. Utilization rate is a key player here and has a huge impact on your credit score. Utilization rate is the amount of credit you have used versus the amount you have available. It’s best to keep it to less than 30%.
Consider this as well: The average age of all your credit accounts, including credit cards, auto loans, mortgages, and school loans. Age of credit has less of an impact than your utilization rate, but the only way to make it go up is to have accounts open and wait.
How Do I Change My Credit Card Limit?
Most credit card companies, like American Express, will review credit accounts on a regular basis and automatically increase the credit limit for accounts in good standing. You can also call your credit card company and request an increase, but they will look at your current creditworthiness. If you have a high utilization rate, then it’s very likely that they will deny your request. If you have already gone over the limit of your card, they will not raise it.
Raising your credit limit when you are in danger of going over the limit is not a good strategy anyway, because you will still have to pay that money back, plus interest and fees.
When Should I Go Over My Credit Limit?
Go ahead and give yourself permission today to spend over your credit card limit in an emergency. There are not very many cases in which extended credit will save your life, but it could make a huge difference if one comes along. If you’re not sure if your situation counts as an emergency, then wait to spend.
When Going Over the Limit Could Save You Money
The other situation in which you may want to consider spending over your credit limit is a case in which going over your credit limit actually saves you money. This is a much more grey situation and will require you to do some math.
Occasionally it is obvious, like if you have terrible vision and broke your only pair of glasses. In this situation, if you cannot work without your glasses, you will lose pay for each day that you wait for a new pair in addition to how much they cost. It might be worth spending over your limit to get them replaced as fast as possible.
A situation that is more common, but also more grey, is car trouble. It may seem obvious, you need a car to get to work and get money, but your car is broken, so you should pay to have it fixed immediately, right? Not without doing some math. You would have to determine if fees, interest, and the consequences mentioned above are cheaper than taking a rideshare or uber for a month.
Tips To Avoid Going Over Your Credit Card Limit
The number one tip to avoid going over your credit limit is to have a budget and to stick to it. This would include an emergency fund and strategy for dealing with any current debt. Here are more tips to avoid going over your credit card limit:
- Know your credit limit before you spend
- Enroll in low balance notifications
- Make reviewing your balance and statement a habit
- Pay as much as you can afford on your credit card debt each month
- Save for big purchases instead of putting them on credit
If you do have to go over your credit limit, pay it down as fast as you can. No good comes from carrying high credit card balances.
The best way to avoid going over your credit card limit is to have a solid emergency fund and live within your means. It’s far easier to maintain your credit score and budget with less spending now than it is to crawl out of a huge amount of debt later. There is no benefit to going over your credit limit.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
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- American Express. "What Is a Credit Card Limit and How Is It Determined."
- Federal Trade Commission. "Credit Card Accountability Responsibility and Disclosure Act of 2009."
- Federal Trade Commission. "When a Company Declines Your Credit or Debit Card."
- Experian. 2020. "Does Going Over My Credit Limit Affect My Credit Score?"
- American Express. 2019. "How To Increase Your Credit Limit."