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.

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.