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All credit cards share one thing in common: They have a credit limit — the upper threshold of the cumulative expenses you can put on the card.
If a card has a $10,000 limit, then you won’t be able to spend any more than that amount on it. That’s the theory, but in practice you could go beyond the limit — and possibly pay a fee for doing it.
While there’s no universal rule for how far over you can go, experts say you shouldn’t try it. That said, if you make a purchase that goes past your credit limit, a few things can happen.
The transaction could be flat-out denied, you may damage your credit score, you could face a penalty APR (annual percentage rate), or you may have to pay an over-limit fee — if you said yes to that latter option.
“What’s mostly happening in practice if you try to go over your limit is the transaction will just be declined. But that’s not what happens 100% of the time,” says Ted Rossman, an industry analyst at Creditcards.com. “Sometimes, they will actually let the transaction go through. It’s really at the card issuer’s discretion.” (Creditcards.com shares an owner with NextAdvisor.)
Here’s what you need to know about going over your credit limit, what consequences you might face if you do, and how to avoid it.
Why It’s Harder Now to Go Over Your Credit Limit
The Credit CARD Act of 2009 effectively eliminated over-limit fees unless cardholders explicitly authorize them. Card issuers are now required to get an opt-in from customers in order to charge for exceeding their credit limit.
But the issuer cannot charge more than one over-limit fee per billing cycle.
If you don’t opt in, the issuer will typically decline any transactions that go past your limit, and can’t charge you any fees. You can opt in or out of over-limit protection at any time.
“That had the somewhat unintended consequence of encouraging most card issuers to do away with those fees because they didn’t want to bother with the whole opt-in process,” Rossman says, referring to some card issuers that no longer have opt-in over-limit programs. But it ultimately depends on the terms and conditions associated with your card.
Before the Credit CARD Act, over-limit fees were another way for credit card companies to make money. They would typically authorize transactions over limits and then charge fees, usually between $25 and $35. According to the Consumer Financial Protection Bureau, Americans saved more than $9 billion in over-limit fees between 2011 and 2014.
But there are now other possible consequences for going over your credit card limit. If you’re over your limit or regularly try to go over it, your issuer might decide to reduce your credit limit, increase your monthly minimum payment, or charge a penalty APR.
That’s why you should consider carefully whether you want to opt in.
“There’s all kinds of reasons, like medical expenses, divorce, or job loss, you might suddenly be dependent on your credit card. But don’t make it worse than it already is. Don’t opt in to go over your limit,” says Beverly Harzog, a credit card expert and consumer financial analyst for U.S. News and World Report.
Should You Go Over Your Credit Limit?
Experts say it’s not a good idea to go over your credit limit because the cons, even if you have opted in to over-limit protection, typically outweigh the pros.
Not only can it lead to long-term debt and possibly a higher interest rate, but it can also hurt your credit score because your credit is overutilized when you’re over your limit. Credit utilization – the ratio of your credit card balances to your overall limit – is the second-most important factor influencing your credit score.
“You’d be using over 100% of your available credit. That would definitely have a negative effect on your credit score,” Rossman says. “When you sign up, you’re committing to not overdraw, so you would technically also be in default of your cardholder agreement.”
If you spend over your credit limit, keep in mind that every credit card issuer handles it differently. Here’s a quick rundown of potential consequences:
- There’s a good chance the credit card will be declined
- You might pay an over-limit fee (if you opted in)
- The interest rate on that credit card could go up
- The credit limit could go down
- Your credit score may drop significantly
- The credit card account could be closed
If you ever go over your credit limit, it may be time to look at your spending and figure out why it happened in the first place, Harzog says.
“If you’re going over your limit, you’re already in trouble at that point. Use this as a time to reevaluate your budget and maybe change your spending habits,” she says. “Do what you can because that’s not the way credit cards are supposed to be used. You pay a lot in compound interest when you carry a big balance.”
How to Avoid Going Over Your Credit Limit
These tips can keep you accountable for your spending and help you avoid going over your credit limit.
Know Your Credit Limit
Start by checking your online credit card account or app to see the difference between your credit limit and your outstanding balance. Any information on your online account will be more up to date than a copy of your billing statement.
Knowing how much available credit you have ensures you stay within your limit.
“It should never be a surprise when you get online and check your available credit,” Harzog says.
Set Alerts, Make a Budget, and Track Your Spending
Just like you can keep a constant eye on your bank account, by setting up balance alerts that let you know you’re about to run out of available funds, you can do the same for credit card limits. Setting up a credit-limit alert that warns you, on your phone or by email, that you’re about to hit the maximum on your credit card will help avoid any negative consequences.
If you are about to go over a credit card’s limit, just do not use that card and pay with cash or a debit card instead.
“If you’re going to the grocery store, and you have to choose between going over your credit limit or using your debit card, using money you already have might be a better choice in that situation. You want to minimize the damage at that point,” Harzog says.
Another way to avoid going over your credit limit, if you use credit cards for your expenses, is setting a budget — but it goes hand-in-hand with tracking your expenses. Harzog says she’s seen people with budgets in place but who don’t track their expenses, which can be problematic.
“They don’t really pay attention to when they spent twice as much on restaurants as they meant to,” she says.
“I used to love to eat out, so I had a limit on what I would allow my husband and I to spend at restaurants. Something like an app can help you set limits for yourself, where you’ll get emails or text messages that say ‘Hey, don’t go out. You’ve reached your limit,’” Harzog says.
Ask For a Credit Limit Increase
You can also give yourself some breathing room by asking for a credit limit increase, but be careful if you’re in a financial bind or you’re prone to spending too much. Keep in mind as well that requesting a credit limit increase may result in a ding on your credit score, if the issuer pulls a so-called “hard inquiry” on your credit report.
If you actually plan to use the extra credit, and carry a balance month over month, then asking for an increase is probably not a good idea.
However, if your intention is to simply lower your credit utilization, then it could be a smart move.
Before taking any action, ask yourself why you want or need more available credit.
Apply For a Balance Transfer Credit Card
If you have a high interest rate and you’re in an endless cycle of trying to pay down the credit card balance, a balance transfer credit card could prove helpful.
A balance transfer credit card gives you time to pay off debt without paying interest on the balance, typically for a period of 12 to 21 months. Over the last few months, banks and credit card issuers have been worried that borrowers struggling financially during the coronavirus pandemic may be more likely to default on their credit card balances, so the number of balance transfer offers has dwindled.
“I’m not seeing as many balance transfer offers, but that doesn’t mean you can’t get one. If you still have a great credit score, you could transfer that debt to a balance transfer card,” Harzog says. “Call the card issuer and ask if that’s a possibility.”