What Happens If You Go Over Your Credit Limit?

over your credit limit

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Are you tempted to put a big purchase on your credit card? Think twice because if you go over your credit limit there will be consequences.

You may be in for a rude awakening the first time you exceed your credit limit because the first thing that takes a hit is your credit score.

Just because you receive a credit limit doesn’t mean you can use the entire line of credit up without a knock-on effect.

In fact, credit utilization or the amount of credit you use compared to your limit each month is a factor that contributes to your creditworthiness.

An individual with a 730 credit score could easily see 90 → 100 points knocked off their score in one period simply by maxing out their credit limit by making an unusually large purchase.

And that doesn’t hit doesn’t even take into account the impact of going past your threshold. So you might be wondering what happens if you go over your credit limit?

What Is My Credit Limit?

Your credit limit is the maximum line of credit offered to you be a lender or credit card company.

A good rule of thumb is that you should only use 30% of your credit limit in any given period in order to avoid negative hits to your credit score.

So, if you were issued a credit card with a $5,000 limit, a 30% credit utilization would amount to $1,500.

By spending $4,900, or 98% of the credit limit, a credit card issuer may conclude that you are struggling financially.

And as Murphy’s Law predicts, when it rains it pours. Just when you are falling behind in payments, credit bureaus take a less rosy view of your creditworthiness, which in turn hurts your credit score.

During those gloomy periods when it may not be possible to pay off your credit card balance in full each month, try to make minimum payments at the very least to limit the damage.

How Do I Check My Credit Limit?

If you are not sure how much credit has been extended to you be a lender, check your monthly statement or visit the online portal of the credit card issuer.

It is important to pay close attention to this number because the rates you are offered by lenders are influenced by your credit score.

And while it may not seem like a big deal to pay an extra 1% → 2% in interest charges each year, the additional costs over a 10, 20, or 30 year period can amount to tens of thousands of dollars or more in needless interest payments.

What Happens If I Go Over My Credit Limit?

You can probably already guess that if you are penalized for simply spending up to your credit limit, the consequences can be even more severe when you go over your limit.

Penalties For Spending More Than Your Credit Limit
  • Overcharge Fees
  • Lower credit limit
  • Account closure
  • Higher interest rate charges
  • Lower credit score
  • Higher minimum payment

Although overcharge fees may be assessed, your credit limit may be reduced, higher interest rate charges may be applied, and your credit score may be impacted, a silver lining does exist.

Can You Go Over Your Credit Card Limit?

Here is the good news, sort of!

Credit card companies are required by law to provide you the option to have transactions declined when you spend beyond your limit.

It’s tempting to opt out of over limit purchases because you don’t want to be left with a red face at the grocery store by receiving a “credit card declined” notification.

But the short term embarrassment may be better than a longer term impact to your cost of borrowing and creditworthiness.

Only you can make the decision for your own personal financial situation. If you do decide to allow over limit transactions, your credit card issuer will only permit a fixed amount so don’t think you’ve got a green light to spend liberally without a ceiling.

By choosing to have transactions declined when they exceed your credit limit, you avoid by default the credit limit fees that may otherwise be assessed.

How Over Limit Fees Work

Not all credit card issuers impose over limit fees when you go over your credit limit. But don’t think you’re out of the woods even if they have a zero-fee policy.

Credit card issuers can penalize you with other charges, such as higher interest rates and higher minimum payment requirements.

When you spend more than your limit, your credit card issuer will make a calculated assessment that you are struggling to budget responsibly and higher interest rates reflect the higher risk you pose to them.

Paradoxically the more they charge, the harder it is to keep up with payments but there is no getting around it unfortunately.

One piece of good news is that if a credit card issuer does charge a penalty fee, the amount is limited to no more than the excess beyond your limit.

So, if your credit limit was $5,000 and you spent $5,045, the fee applied could not exceed $45.

Credit Card Tips

Rather than wonder what happens if you go over your credit limit, contact your credit card issuer and request an increase in your credit limit.

If you have a history of making payments on-time and paying off your credit card balance each month, your credit card company may be willing to extend you a larger line of credit.

Another possibility is to pay off a portion of your balance before it is reported to the credit bureaus (Experian, Equifax, and TransUnion), which typically happens at the account statement closing date.

Even if your credit utilization remains high but you ensure your balance is below the limit, you may be able to avoid over limit fees, higher interest rate charges, and higher minimum payments.

Lastly, consider splitting a payment across a few credit cards rather than max out a single credit card.

Do you know what happens if you spend over your credit limit? Let us know if you have experienced issues going over your limit? Share your thoughts in the comments below.

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