What Happens When You Go Over Your Credit Limit?

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Going over your credit limit could result in fees and negative impacts on your credit score. (iStock)

A credit card is handy for paying bills, covering daily expenses, or booking travel, but it’s not a free pass. Your credit limit determines your purchasing power at any given time.

Although some credit card issuers allow you to exceed your spending limit, it can have negative consequences. These can include paying over limit fees and potentially downgrading your credit score.

What Happens When You Go Over Your Credit Limit?

When you go over your credit limit, you are making purchases beyond what your credit card issuer normally allows. The success of the transaction depends on the over limit policy of your credit card company.

“You can only exceed your credit card limit if you purchase over-limit protection,” said Brian Meiggs, founder of personal finance site My Millennial Guide. “Otherwise, your transaction will be declined.”

This is because the 2009 CARD law requires you to choose to pay an over limit fee before you can exceed your credit limit. If you do not register, you will not pay an over limit fee. But unless your card issuer specifically authorizes you to exceed your spending limit, the transaction can be declined.

People with an excellent credit history and a good credit rating will be able to apply (and get approved) for almost any card. If you think you fall into this category, use Credible’s free financial tools to browse different types of credit cards to see which one best meets your financial needs.

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What are the financial consequences of exceeding your card limit?

Going over your credit card limit can affect you financially in a number of ways.

“Your interest rates could go up, it could result in a lower credit score and credit limit, and you could be charged over-limit fees,” Meiggs said. “In the worst case scenario, your credit issuer could close your account if you usually exceed your credit limit. “

While CARD has effectively eliminated over-limit fees, you can still pay them if you’ve signed up for them. In terms of impact on credit score, going over your limit could negatively affect your credit utilization rate. This is how much of your total credit limit you are using at any given time. Unless your credit limit increases as your balances increase, going over your card limit could hurt your usage rate and cost you credit points.

Having a larger balance on your cards could also mean paying more interest if you’re stuck with a higher APR. Performing a zero percent balance transfer can help reduce interest charges. But it’s not free because it usually means paying a balance transfer fee.

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What are the alternatives to going over your credit limit?

Going over your spending limit isn’t ideal for a number of reasons. The good news is that there are other options you can take.

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How to avoid going over your credit limit

If you’d rather not go over the amount of credit you have on your card, there are a few things you can do to avoid it.

Budgeting and expense tracking is a good place to start, Meiggs said. A budget is one of the most important personal finance tools you can use to manage your finances and avoid overspending.

Then you can set up transaction alerts for your credit cards to notify you when you are approaching your credit limit. This can help you limit purchases with the card until you have a chance to pay off some of your existing balance.

It is also helpful to write down your credit limit for each card you have. You can strategically request credit limit increases to free up more credit while potentially improving your credit utilization rate.

Removing over limit fees and protections can make going over your credit limit questionable. But if you decide not to, regularly assess your balances and available credit and aim for a credit utilization rate of 30% or less, Meiggs advised.

If you are planning to apply for new credit cards, including balance transfer cards, do your homework first. Consider visiting Credible to review offers from different credit card companies to find the one that best suits your needs and spending habits.

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