January 30, 2024

What Happens if You Go Over Your Credit Limit? The Financial Impact

Congratulations! You just got approved for a credit card. Now you can charge your bills and expenses to the card to pay off later. But be careful: You don’t want to go too wild with your spending, or you risk racking up debt and exceeding the credit limit on your account.

When you apply for a credit card and receive approval, the company issuing the credit card will set a credit limit. This is the maximum amount you can spend on the card. Your credit score often affects your credit limits — meaning having a good credit report helps you get a higher limit.

But what happens if you go over your credit limit? How does it affect your credit score, and are there consequences you should be aware of?

What are credit limits?

Every credit card has a spending limit. Lenders will base your limit on several things, including your income, credit score, and debt. Some credit card companies set a maximum limit for all their cardholders to prevent their risk of lending more money than what cardholders can pay back — so you won’t be able to get a limit increase beyond that amount, even with excellent credit.

Credit companies even offer different limits and card options for certain credit score ranges. For example, higher credit scores may open you up to better lending opportunities, like high-limit credit cards or lower interest rates. Many of these also come with extra perks, like travel miles, cash back, and rewards.

How credit limits work

Let’s assume your credit limit on a single card is $5,000. That’s your spending limit or the cap on how much you can borrow with that line of credit. If you try to go over that limit with a transaction, the credit card issuer declines the transaction and you can’t make the purchase.

If your credit card balance (the amount of money you’ve charged to your card) is at $4,900 and you try to buy something that costs more than $100, your card will decline. The credit card issuer will block your purchase because it would put you over your credit limit. The same would happen if you have a balance of $0 and try to make a large purchase over $5,000 since that’s your total spending limit.

Having your card declined once won’t affect your credit score; you just won’t be able to complete your transaction unless you have another credit card to use or funds available to pay down your bill. If you make a habit of spending up to your limit and having your card declined, this signals to creditors that you borrow too much too often, and it could lower your credit score.

Can you go over your credit limit?

Technically, it’s possible to go over your credit limit. If that happens, you may owe an over-limit payment. Think of an over-limit payment (also called an over-limit fee) like an overdraft fee. With a standard debit card, when you spend more than what’s available in your checking account, your bank will charge you an overdraft fee. The same happens with a credit card; it just has a different name.

Thanks to the Credit CARD Act (Card Accountability Responsibility and Disclosure) passed in 2009, you now have to opt into an over-limit protection program with your credit card provider. While this allows you to exceed the specified limits, it also allows your provider to charge you over-limit fees. If you don’t opt in, you remain protected from going over your limit and can’t incur over-limit fees.

The protection from going over your credit limit is one of the biggest advantages of using credit cards versus debit cards or checks because it prevents you from exceeding your limit and racking up fees. But think carefully before opting into any program that removes this protection and familiarize yourself with the rules and fees, especially if you’re new to credit or at risk of overspending.

How much can you go over your credit limit?

You can’t go over your credit limit unless you’ve opted into the cardholder over-limit protection program. If you do, know that credit card issuers will cap how much you can spend extra, just like your credit or spending limit. Your creditor will choose the amount you can go over.

What are the consequences of going over your credit limit?

Unless you’ve signed up for the option, you don’t have to worry about exceeding your credit or spending limits; your credit card issuer will simply decline your payment if you try to go over your limit. That said, if you reach your limit (also known as “maxing out” your card), or if you opt into the over-limit protection program and exceed your limit, you could face a similar set of consequences.

Here’s what you might be up against:

  • Higher minimum payments: Once you max out your card or exceed your credit limit, your credit card issuer may increase your monthly minimum payments to account for the high balance.

  • Updated credit terms: At-limit and over-limit events allow credit issuers to update or adjust your credit terms. They can choose to reduce your standard credit limit or modify minimum payments. For those in the over-limit protection program, your card issuer can even apply extra fees to make back that difference.

  • Credit score impact: Failure to pay your credit bills on time can drop your credit score. If you repeatedly max out your card or go over your credit limit, it can leave a lasting mark on your credit history report and affect future approvals.

  • A pause on charges: If you hit your limit, your card issuer will decline your card if you try to make another purchase. This can create a headache if you need to pay for something, like a meal you’ve already eaten at a restaurant. On the flip side, for those who exceed their limit, credit issuers can also temporarily freeze your card until you’ve made a payment if your balance is especially high, preventing you from further overspending.

Does having a balance over your limit affect your credit score?

Initially, no. As long as you pay your bills on time, even if you exceed your limit, your credit score won’t change. It may even improve because you’re doing what you’re supposed to. But if you don’t pay your bill by your statement date, your credit score will take a hit.

Also, having a high credit utilization — which is the amount of your credit limit you actually borrow, or “utilize,” consistently — can hurt your credit score. A lower utilization is better for your credit score because it shows that you routinely pay your balance and don’t overspend.

On the other hand, if you max out your card, or if the debt on your card starts building because of missed payments and high interest rates, your utilization rate skyrockets. High utilization signals to creditors that you spend more than you can manage and can knock down your credit score significantly.

A great way to make the most of your card is to request credit limit increases every few months to lower your credit utilization. If you’re routinely spending $750 on a card with a $1000 limit, you’re using most of what’s available. But if you can get an increase to a $1500 limit, you’re using a lot less. Learning how to increase credit limits by reaching out to your bank or lender will help you request an increase to try to lower your utilization rate.

If you exceed credit limits an excessive amount of times, your credit score will suffer. Creditors prefer not to see this happening often, and if it happens too frequently, your credit card issuer may even cancel your line of credit and close your account. That said, if you can pay that card off and close the account afterward, it shows creditors you’re no longer overspending with that card, which can then improve your credit score.

How to prevent going over credit limits

We highly recommend avoiding the opt-in for over-limit protection. This prevents you from exceeding your existing spending limits. It’s unfortunate having a card declined when you’re maxed out, but that’s better than paying additional fees.

It also helps to check how many credit cards and lending accounts you have open and how much you’re borrowing across those accounts. While each of your accounts has a utilization rate, you also have a total utilization rate for your combined account limits and balances. If you have too many accounts with high balances, it can raise your utilization rate and lower your credit score. Typically, the fewer accounts you have, and the lower your balances, the better.

If you do opt into an over-limit protection program, consider these strategies to avoid going over your credit card limit:

  • Know your limits: Know your credit limit, and keep track of your balance to steer clear of reaching it.

  • Set up notifications: Most credit card issuers offer a mobile app or email service that notifies you of any large transactions on your card and when you’re close to your credit limit. Make sure you have these features set up on your phone or through your email to help you keep an eye on your transactions.

  • Keep a low balance: Remember to pay down your credit bill each time you use the card. The sooner you pay down your debts, the better off you’ll be. If you cannot pay your cards down early, establish a regular payment schedule or use an autopay solution.

  • Stick to a budget: The key to strong financial health and management is creating and sticking to a budget. Compare your expenses to your household income, and make sure you live within your means. Try not to use your card to spend money you don’t have.

  • Choose a rewards credit card: If you have a rewards credit card that offers cashback as an incentive, you earn a percentage on every purchase you make and can apply what you earn to your next credit bill.

  • Request a limit increase: With a good-faith history, a record of on-time payments, and a good credit score, you may be able to convince your credit card issuer to increase your spending limits simply by asking. By increasing your limit and not adding to your balance, you can lower your credit utilization and improve your credit score.

  • Transfer balances: In some cases, you can transfer balances from one account to another — like one credit card to credit another — with a lower interest rate and an extended grace period to pay down your debt. You may be able to secure a card that has a promotional 0% interest rate for a new account for up to a year, then transfer your other existing balance to that card to give yourself time to pay off the amount without adding more interest to it. Unfortunately, not everyone is going to qualify for a balance transfer, so do your research.

Staying on the right side of your credit limit

Paying your bills on time, especially your credit card bill, is crucial to staying on track with your finances, sticking to your budget, and maintaining your credit score.

But sometimes, the day your bill is due and the day you get your paycheck don’t align, leaving you scrambling. With EarnIn’s Cash Out tool, you can stress less with up to $100 of your pay a day and up to $750 per pay period to pay for your expenses. With EarnIn’s other tools, like free Credit Monitoring, you can keep an eye on where you’re at financially and be ready for what’s to come. You can also check out our free credit card payoff calculator to get a personalized repayment plan for a smarter journey towards becoming debt-free!

Download the EarnIn app today and discover money at the speed of you.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

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