Can You Go Over Your Credit Limit? What Can Happen?

Yes, you can go over your credit limit. It can happen for a variety of reasons. You could have an unexpected, large expense that you have to cover quickly. Or you haven’t been keeping track of your spending. It can happen to anyone. What you need to know is what happens when you do it and what you can do to prevent it.

Key Takeaways:

• 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 check to see if your card has a limit before purchasing.

• You may incur fees and increased interest rates if you exceed your limit. Or, in some cases, you can get your account closed.

• You can utilize multiple methods to keep yourself from going over your credit limit.

What Happens If You Go Over Your Credit Limit?

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.

A few things can happen if you try to use your card when it’s over the limit. 

• You pay an over-limit fee

• Your interest rates go up

• Your future credit limit drops

• Your credit score is negatively impacted

• Your account may be closed

As of 2009, surpassing your credit limit has become much harder 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 purchased online or in the store.

The Negative Impact on Your Credit

Going over your credit limit impacts your credit score. It takes a particularly hard hit on your Credit Utilization Ratio. Your Credit Utilization Ratio is how much of your credit you use. The optimal range for your credit score is 30% or lower. This is the best number to have a healthy credit score. When you start getting above this range, your credit score will decrease. It will also affect the amount you can spend on your credit card. Your credit card company could lower the limit on your card. If this happens, it could show you are using more on your card and further lower your credit score.

Added Fees

When you exceed your credit limit, many card companies will charge fees. This is called an over-limit fee. The credit card company determines the amount, which can vary. If your card company approves your purchase over your limit amount, you could get an additional fee added to that purchase. It is best to avoid putting more purchases on your card during this time.

Increased Interest Rates

Spending beyond 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 or 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.

Account Closure

If you exceed your credit limit, the worst-case scenario is that your credit card company will close your account. 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 keep going over your limit.

What Happens If You Try to Spend More Than Your Credit Limit?

If you attempt to make a purchase that exceeds your credit limit, the outcome largely depends on whether you have opted in for over-the-limit transactions. Since the Credit CARD Act of 2009, credit card issuers are required to decline transactions that would push you over your limit unless you’ve opted into over-limit protection. Here’s what could happen:

If You Haven’t Opted into Over-Limit Protection

• Transaction Declined. If you try to spend more than your credit limit, your transaction will likely be denied. For example, if your card has a $2,000 limit and you’ve already charged $1,900, a $200 purchase may not go through. This can be frustrating, especially in an emergency.
• No Additional Fees. Since the transaction won’t go through, you won’t incur an over-limit fee, but your available credit remains maxed out.

If You Have Opted into Over-Limit Protection

• Transaction Approved, but at a cost. Some card issuers allow transactions beyond your credit limit if you’ve given prior consent for over-limit protection. However, this usually comes with an over-limit fee, which can range from $25 to $35, depending on your issuer’s policies.
• Higher Interest Rates. Going over your credit limit could trigger a penalty APR, meaning you’ll pay higher interest rates on your balance.
• Reduced Future Credit Limit. Some lenders might lower your credit limit if they see that you consistently exceed it.

The best practice is to keep track of your spending and know your credit limit to avoid the possibility of a declined purchase or extra fees.

Can You Overdraft a Credit Card?

The concept of "overdrafting" applies mostly to checking accounts, where banks allow transactions to go through even when you don’t have enough funds, sometimes charging an overdraft fee. With credit cards, the process is a little different.

Can You Spend Beyond Your Credit Limit?

Yes, you can exceed your credit limit, but only if your credit card issuer allows it. Some cards automatically decline transactions that exceed your limit, while others will approve them if you've opted into over-limit protection.

What Happens When You Go Over the Limit?

If you go over your credit limit, the consequences can be severe:

• You may be charged an over-limit fee. Fees can be as high as $35 per occurrence.
• Your credit utilization ratio will increase, which can negatively impact your credit score.
• Your interest rate may go up. Issuers may impose a penalty APR, leading to significantly higher interest charges.
• Your card issuer might lower your credit limit or even close your account if you go over the limit frequently.

Exceptions: Charge Cards

Unlike traditional credit cards, charge cards don’t have a preset spending limit. Instead, they allow you to make purchases based on your spending habits and ability to repay. However, charge cards require you to pay off the full balance each month.

What Happens If You Go Over Your Credit Limit but Pay It Off?

If you exceed your credit limit but quickly pay off the excess amount, you may still face some consequences. While paying off the amount can help you avoid long-term debt, it doesn’t necessarily undo the damage to your credit or account standing.

Potential Consequences Even If You Pay It Off Quickly

1. Over-Limit Fees Still Apply. If your card issuer allowed the over-limit transaction, they may still charge a fee, even if you pay off the balance immediately.

2. Temporary Credit Score Drop. Your credit utilization ratio (how much credit you’re using relative to your limit) is a significant factor in determining your credit score. Even if you pay off the excess amount right away, your credit score may drop if your statement reflects a balance over the limit before payment is processed.

3. Possible Interest Rate Increases. Some card issuers impose a penalty APR (a much higher interest rate) if you exceed your credit limit. Even if you pay off the over-limit amount, the higher interest rate may still apply to future balances.

4. Potential Credit Limit Reduction. Some issuers may lower your credit limit after noticing that you exceeded it. This can further impact your credit utilization ratio and make it harder to manage future purchases.

5. Lender Trust Issues. Even if you pay off the excess amount quickly, some lenders view going over your credit limit as a sign of risky financial behavior. This could affect your chances of securing credit limit increases or favorable loan terms in the future.

How to Avoid These Issues

• Set up alerts with your credit card issuer to notify you when you are approaching your credit limit.
• Make multiple payments throughout the month to keep your balance low.
• Request a credit limit increase if you regularly find yourself near your limit.
• Use a budgeting app to monitor spending and avoid exceeding your credit limit.

Paying off an over-the-limit balance quickly is a smart move, but it doesn’t always prevent the negative consequences that come with exceeding your credit limit.

How To Stay Within Your Credit Limit

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. You can also set up an alert to notify you when you are getting close to your limit. 

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 won’t 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 have trouble making one large monthly payment, you can break it down into smaller payments. Many credit card companies allow you to make as many payments as possible.

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.

Another solution is to open up another credit card. It is not always recommended to do this if you already have issues with going over your credit limit. However, getting another credit card will increase your credit amount. In turn, this will lower your Credit Utilization Rate. It will lessen the impact on your credit score.

To Sum Up

Going over your credit limit can have significant consequences for your financial well-being. It's crucial to understand the implications of exceeding your credit limit and to take proactive steps to avoid it. When you surpass your credit limit, you may incur over-limit fees, damage your credit score, and face higher interest rates on your existing balances. Moreover, it can lead to a cycle of debt that becomes increasingly challenging to escape. To protect your financial stability, it's essential to monitor your spending, budget wisely, and communicate with your credit card issuer if you anticipate any difficulties. By staying within your credit limit, you avoid negative financial repercussions and ensure that your credit remains valuable in your financial toolkit.