What Happens If You Go Over Your Credit Limit on a Credit Card?
Exceeding your credit limit could result in penalties and fees and may affect your credit score.
Contributing Writer at Tally
April 6, 2022
When you're approved for a credit card, the card issuer will set a limit that you’re allowed to spend. This is known as your credit limit. But what happens if you go over your credit limit? Is it possible to do so? Will you face consequences like penalties and fees? Will you harm your credit score?
We’ll answer those questions and more. We’ll also go over some things you can do to keep from exceeding your credit limit in the first place. By the end of this article, you should have a much better understanding of how credit limits work and their impact on your personal finances.
What are credit limits?
A credit limit is a maximum amount that your lender permits you to charge on a revolving credit account. “Revolving credit” refers to debts that renew automatically when you pay off your existing balance. You can use or borrow money as long as you don’t exceed your limit. Credit cards and lines of credit are the most common types of revolving credit.
As an example, let’s say that you open a new credit card. Your credit card issuer sets a $5,000 limit. This means that the maximum amount you can spend on the card is $5,000. When your balance reaches $5,000, you will need to make a payment if you want free up credit on your card to make more purchases.
So if you pay $1,000 toward your credit card balance, your new available balance is $4,000 and you can spend another $1,000 before reaching your limit again.
Is it possible to go over your credit limit?
The short answer to this question is yes — although it’s much more difficult to do than you may think. The Credit Card Act of 2009 stipulates that you must opt in to over-limit protection before your lender can allow you to exceed your credit limit. Opting into an over-limit protection plan essentially authorizes your credit card company to approve transactions that exceed your limit and charge you any associated penalties and fees if you do so.
In the example above, once you hit your $5,000 credit card limit, you would only be able to use the card for additional purchases if you had previously opted in to over-limit protection. However, there are consequences associated with this, as we’ll explain more in the section below.
Now that you better understand credit limits and how they work, let’s talk about what happens if you go over your credit limit.
What happens if you go over your credit limit?
Assuming you have not opted in to over-limit protection, nothing serious really happens if you go over your credit limit. Your credit card transaction will likely be declined at the store, and you won’t be able to make a purchase. There are no fees or penalties associated with going over your credit limit, and a declined transaction won’t harm your credit report or credit score.
However, there may be indirect impacts on your credit report if you carry a high balance. For instance, regularly using your entire credit limit will yield a credit utilization rate of 100%, which will harm your credit score. Your credit utilization ratio measures the amount of revolving credit you’re using versus your credit limit.
Fees for a credit card company’s over-limit program will vary from lender to lender. Typical fees are $25 for the first over-limit transaction and $35 for your second over-limit transaction within a six-month period. These fees are added to your existing balance and are subject to interest charges.
Your lender may also charge you a higher interest rate on your balance if you go over your credit limit. Again, the interest rate increase will depend on your lender. Your lender could also choose to lower your credit limit or close the account altogether if you go over your limit more than a few times. Again, this is all up to your credit card company. It’s worth reading the fine print in your terms and conditions to determine how an over-limit transaction will affect you specifically.
Lastly, going over your credit line limit may impact your credit score, as you will have a credit utilization ratio greater than 100%. An account that’s over the limit demonstrates riskiness to the credit bureaus and can potentially result in a drop in your credit score.
What can you do to prevent yourself from exceeding your credit limit?
Here are a few things that you can do to keep from exceeding your credit limit.
Don’t opt in to an over-the-limit program
Opting in to your credit card company’s over-the-limit program can have consequences. If you don’t manage your credit card account carefully, you’ll likely be charged fees that can make it more difficult to pay off your balance. Simply choosing not to opt into the program is a sure-fire way to ensure you don’t exceed your credit limit.
Request a credit limit increase
Another option is to request a credit limit increase from your lender.
If your lender approves your request, you’ll have more borrowing power, helping you avoid over-limit fees or having a transaction declined. Additionally, if you have a higher credit limit but don’t max out the card, you’ll help your credit utilization ratio.
Pay down your existing balances
Another strategy to avoid spending over your limit is to increase your available credit by paying down your existing balances.
Credit cards come with high, compounding interest rates. Essentially, this means that you are charged interest on top of interest. Even if you make your minimum payments each billing cycle, it can be challenging to pay down your existing balance.
You can also consider strategies like the 15/3 payoff hack to help pay down your balance and prevent you from exceeding your credit limit.
Manage your spending habits
Tools like personal income statements and household budgets can help you set spending limits and control the amount of money that you’re putting on your credit cards in the first place. Start by looking at your spending habits. Are there purchases that you can do without? Can you cut back on discretionary spending and put that money toward paying off your credit card debt?
Understanding credit limits can help you better manage your finances
When it comes to managing your finances, it’s important to know what happens if you go over your credit limit. If you haven’t opted into your financial institution’s over-limit coverage, your credit card company will likely decline any charges that will put you over your credit limit. But if you are considering opting in to over-limit coverage, be sure to consider the negative consequences of doing so. You will be subject to over-the-limit fees and potentially higher interest rates.
Instead of opting in to over-limit coverage, focus on sound financial management. Establish a regular payment history and pay down your existing balances to increase the amount of credit you have available. You also might consider requesting a credit limit increase from your lender.
If you're looking to focus on paying down your existing credit card debt, be sure to look into Tally†. The app can help you manage due dates and pay down debt quickly and efficiently with a lower-interest line of credit.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.