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What Happens if You Go Over Your Credit Limit?
Key takeaways
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Exceeding your credit limit may result in declined transactions, fees, and penalty interest rates
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Going over your limit could negatively impact your credit score and future borrowing ability
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You can avoid over-limit issues by monitoring balances and setting up account alerts
When you receive a credit card, the issuer will assign a credit limit based on a variety of factors, including your credit history, earnings, existing monthly expenses, and disposable income.
What is a credit limit? It's the maximum amount you can borrow on a particular card, including purchases, interest, and fees. Generally, higher incomes and better credit scores can make you eligible for higher credit limits.
But whether your credit card borrowing limit is $2,000 or $20,000, going over credit card limits can create problems. The good news is that these problems might be avoided by carefully managing your credit limit and spending.
In this article, we'll look at common reasons people exceed their credit limit, what the consequences could be, and how to avoid going over your credit limit in order to maintain healthy credit.
What does it mean to go over your credit limit?
Exceeding your credit limit means that your total balance on a credit card — including purchases, interest, fees, and pending charges — is more than the maximum amount approved by the card issuer.
If your credit limit is $2,000 and you owe $2,000, you've "maxed out" that card. If the balance reaches $2,020, you've exceeded the limit — and that could mean trouble.
What happens if you go over your credit limit?
The consequences of exceeding your credit limit can be immediate as well as long-term. Here are 5 common problems that could arise.
1. Your transaction may be declined
The card issuer might decline credit card purchases over your limit. It may be embarrassing to be standing at the checkout and have a declined transaction when you exceed your credit limit.
By declining the transaction, the credit card issuer is protecting you from further overspending.
2. You may be charged an over-the-limit fee
Rather than decline a transaction, some credit card issuers may let you exceed the credit limit and charge an over-the-limit fee.
Over-the-limit fees may be subject to federal regulation.
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The credit card issuer’s policy must include over-limit fees
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You must receive a clear notice explaining the fee policy and how much the fees could be
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You must opt in to allow over-the-limit transactions after seeing that notice
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A transaction — not fees or interest charges — must cause your balance to go over the limit
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The fee is generally capped at the amount by which you exceed your credit limit
If you don't opt in for over-the-limit protection, the transaction will likely be declined.
3. Your interest charges may increase
Going over your credit limit may result in higher out-of-pocket costs.
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Higher interest. Your card issuer may begin charging you a penalty APR (annual percentage rate) that's higher than the standard rate. Under the federal CARD Act, you’re entitled to 45 days’ notice before your interest rate increases
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Loss of promotional APR. Low or 0% interest on new credit cards is a major perk, but exceeding the credit limit (or making a late payment) could trigger standard interest rates
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Increased minimum payment. In addition to raising the interest rate, an issuer may require larger minimum monthly payments
4. It could impact your credit score
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. Repeatedly exceeding your credit limit, however, could have consequences.
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Higher credit utilization. Credit utilization is the percentage of available credit you're using. Many experts recommend staying at 30% or less. However, if you're using 100% or more of your available credit on even one card, that could impact the credit utilization portion of your credit score
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Potential negative reporting. Some issuers report over-limit activity to the credit bureaus, which may affect your score and future credit approvals
5. Your account may face restrictions
Credit card issuers closely monitor how you manage your account. If they see that you're exceeding your credit limit, they may:
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Reduce the credit limit, which could affect your credit score
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Freeze the account, keeping you from using the card at all
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Decline transactions, making the card more difficult to use
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Close the account, which will be reported to the credit bureaus. This also could affect your credit score
Why do people go over their credit limit?
Several things might trip you up when it comes to staying under your credit limit. Here are some of the common issues:
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Payment problems. Perhaps a payment didn't post before the due date, or there was a returned payment
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Pending transactions. Some cards include pending transactions in the balance, but some don't, which could lead you to believe you owe less than you actually do
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Recurring payments. It's easy to forget about a recurring payment until you see it on your bill, particularly ones that come around only once a year
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Unexpected purchases. Emergency car repairs or medical bills can cause someone to exceed their credit limit
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Interest charges. Remember that interest and fees are included in the total balance. The higher your balance gets—as you approach your credit limit—the higher your interest charges could climb. An unexpectedly high interest charge might catch you by surprise and push you over your credit limit
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Annual fees. The most exclusive credit cards can have annual fees that are hundreds of dollars
Simply paying attention — monitoring your accounts frequently — can help you avoid most of these issues.
How to avoid going over your credit limit
You can see that exceeding a credit limit on a credit card can lead to all sorts of problems. However, there are several steps you can take to try to avoid trouble.
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Monitor your balance and spending limits. Keep your credit utilization ratio at 30% or less, pay off balances every month, and always make payments on time
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Set up account alerts. Your bank's digital tools could notify you when you get close to your credit limit, a large purchase posts to your account, or you have a low available balance
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Pay down cards that are near their limits. Maxing out credit cards damages credit utilization. Put them aside and budget to pay these off as quickly as possible
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Apply for a credit limit increase. Requesting a credit limit increase to reduce the risk of going over may give you some breathing room but be aware that it could result in a hard inquiry on your credit report
What to do if you go over your credit limit
Don't ignore an over-the-limit situation. Here are 4 steps you could take to keep a bad situation from getting worse.
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Make a payment immediately. This could remove the over-limit amount or at least reduce it. Taking fast action could help you avoid fees, quickly restore available credit, and keep the account in good standing
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Check recent transactions. Disputing errors could help you correct your balance. Look for duplicate charges, unexpected fees, or pending transactions that finalized differently than you were expecting
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Contact your credit card issuer's customer service department. Explain what happened and see if they will waive the over-the-limit fee and/or offer a temporary credit line increase. Also ask them to explain how this event might affect your account. Asking for help could sometimes prevent further issues
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Consider requesting a credit limit increase. If approved, a higher limit may lower your credit utilization ratio — but only if don't spend your way back up to the limit. However, if you frequently go over your credit limit, you might be turned down
FAQs
Yes, your card might be declined if you go over your credit limit. Many cards may be declined at the point of purchase if the transaction would cause you to exceed your credit limit. Checking your available credit in online and mobile banking can help you avoid this situation.
Going over your credit limit could hurt your credit score. However, if you temporarily exceed the limit and pay down the excess right away, there might not be any impact. Exceeding the limit, and even keeping the balance close to it, could hurt your credit utilization ratio, which accounts for about 30% of a credit score in the often used FICO® score.
Yes, exceeding your credit limit could result in over-the-limit fees, but that could depend on whether you opted for over-the-limit protection. The amount of the fee generally can be no more than the amount by which you exceeded the limit. Read the card issuer's over-the-limit policy carefully before opting in.
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