Going over your credit limit isn’t a good idea — everyone knows that. But what happens when you overspend, and how can you recover from it?
If you go over your credit limit, your interest rates may rise, and your credit limit and score will drop. In addition, your creditor may close your credit account or have your credit card declined for future payments.
For several reasons, you want to avoid exceeding your credit limit at all costs, and recovering from an overspend can take time. The rest of this article will discuss whether you can go over your credit limit and what might happen if you do.
You can only go over your credit limit if you have a specific card type. Some charge cards don’t have credit limits and allow you to spend indiscriminately if you can pay off the balance at the end of every month.
Always make sure you understand the terms of your agreement with a lender and stick to paying off your balance in full each month.
It’s also essential to discuss over-limit protection, which will give you the freedom to occasionally spend over your credit limit. Still, this protection only applies if you opt into the program and may come with other conditions you must consider. It’s also generally not advised to exceed your credit limit, even in these cases.
Most good credit cards will not offer you over-limit protection. In general, when you try to complete a purchase that’s over your limit, your transaction will be declined, but the following might happen as a result as well:
As of 2009, it’s become much harder to surpass your credit limit due to the Card Accountability Responsibility and Disclosure Act (CARD), which disallows you from spending over your limits unless you opt-in to over-limit protection.
Since over-limit protection comes with some fees and potentially higher rates should you go over the limit, most people don’t bother.
If you’re not signed up for over-limit protection, you won’t be able to complete a transaction that would take you over your limit. For example, if you had a limit of $3,000 and had already spent $2,700, a $500 transaction wouldn’t go through, whether you made the purchase online or in the store.
The most crucial aspect to consider about going over your credit limit is that it will detrimentally affect your credit score. This is because up to 30% of your credit score depends on your credit utilization ratio, which is the amount of available credit you’re spending.
The optimal range for a good reflection on your credit score is 30-40%, so you might begin to understand why banks and lenders frown upon using most of your income. In addition, this negative credit score could affect your future credit limit, your standing with future lenders, and your eligibility for specific credit card rates.
Spending over your limits may affect your interest rates on a card. For example, if you exceed the limit on one card, the issuer might increase your interest rate. This effect may spread to your other credit cards.
When lenders are uncertain about your ability to manage to spend effectively, they may raise your interest rates. For new credit cards as well, your credit score and credit history will be considered, and your rates will be set accordingly.
The most important thing to remember regarding your credit card is that it represents a relationship of trust between you and your lender. Breaching that trust by going outside the terms of your agreement—accidental or not—poses an investment risk to lenders.
If your credit score is always poor, you have a history of not paying off your debts, or if you overspend one too many times, your lender might close your account entirely. Of course, some lenders are more lenient than others, but it’s still best not to push your luck.
To avoid going over your limit, it’s essential to be aware of how much available credit you have left so that you don’t try to spend over your limit. Most banking apps and websites have a simple, straightforward interface that will tell you exactly how much credit you have left when you log in.
Use this tool to ensure you don’t exceed your limit and keep your spending habits in check. Reviewing your balance regularly can help you stay on track with your spending and ensure that you’re not going to make a purchase that will negatively impact your credit.
Paying off your debts and credit card balance as quickly as possible is vital so you can focus on your monthly spending and not worry about past debts.
If you’re spending close to your limit each month but still staying within budget, it might be worth speaking to your lender about a limit increase as well. Doing so will give you a lot more room to avoid maxing out your credit utilization rate; make sure you don’t max it out as soon as you get it.
It’s always better to avoid overspending on your credit card, which is where Simple Fast Loans can help you with emergency expenses. So, if you’ve got a major bill you need to take care of, a medical emergency, or a critical home repair, a loan from Simple Fast Loans can help you avoid spending too much on your credit card.
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Assuming you’re approved, you can have your money later or the following business day. Don’t let significant expenses leave you stranded and at risk of overspending on your credit card; instead, trust the experts at Simple Fast Loans to help you immediately get the cash you need.