What Happens If You Go Over Your Credit Limit? (2024)

A “credit limit” refers to the amount of money a cardholder may borrow when transacting with a credit card. Each transaction you make with a credit card adds to your account balance and reduces your available credit. Making purchases in excess of this maximum amount before paying down the balance is often called going “over” your credit limit.

If your account has a credit limit of $5,000 and you make a purchase of $250, the remaining credit available is $4,750. If you then make additional purchases of more than $4,750, you will exceed your credit limit, potentially incurring fees and damaging your credit score.

Can You Go Over Your Credit Limit?

Yes. It is possible to exceed your credit limit. The amount your issuer will allow you to borrow beyond your limit is typically unknown. Factors a card issuer evaluates to determine any buffer beyond your limit may include your past payment history and any bank balances you maintain checking and savings accounts with your issuer.

The credit limit itself also depends on three distinct factors:

• Financial situation: Card issuers look at your debt, income and other obligations when choosing an appropriate credit limit. This is all information you may be asked to provide when signing up for a card. If it’s clear money is available to easily cover a higher bill, card issuers may sometimes increase a limit.
• Credit score: Credit history is also considered when evaluating a card’s credit limit. When applying, the issuer will pull your report from a major credit bureau such as Equifax, Experian or Transunion. Lower-risk applicants will generally be rewarded for higher credit scores with a higher credit limit.
• Other factors: The financial position of the lender as well as general economic conditions may affect your individual credit limit. Some cards are designed with certain parameters dictating credit limits; the cobranding of a card and its issuer’s terms may dictate a maximum limit. Secured cards place limits on a line of credit based on how much a consumer deposits to collateralize the account.

Should You Go Over Your Credit Limit?

No. It’s best not to exceed the credit limit on your credit card. Issuers sometimes charge overlimit fees when cardholders attempt to extend credit beyond a credit limit. Federal law requires cardholders to agree to these fees and you may be able to opt out of the ability to charge more than your credit limit. If you opt out, you’ll see a transaction decline when you see your limit. Even when opted in to overlimit charges, cardholders may see a transaction denial when attempting to make a purchase if they have exceeded or are about to exceed a credit limit.

If possible, don’t come anywhere close to exceeding a limit. A credit limit affects your credit score by influencing a factor known as credit utilization. Your credit utilization rate compares overall available credit across all accounts to how much of the available credit you’ve used. Experts typically recommend consumers keep credit utilization under 30%, but we recommend keeping it below 10% for best results.

Since banks may report your monthly balance at different times, the simplest way to keep your credit limit down is by making payments against a balance throughout the month and ensuring the whole balance is paid off before its due date.

The higher your credit limit, the more you can spend before your credit utilization becomes an issue. This introduces more flexibility in how you use your credit card, but creating debt with a higher limit is much easier.

What Happens If You Go Over Your Credit Limit?

The most common consequence of exceeding a credit limit is a transaction denial. When you use the card for a purchase, the card will be declined and you’ll need to provide another payment method or forgo the purchase.

In many cases, if you’ve opted in to overlimit fees, you may be charged a fee if you extend credit beyond the credit limit. These fees are outlined in any cardholder agreement, so if you’re worried about being charged a fee for exceeding a limit, check your cardholder agreement for details. You must have agreed to overlimit fees and some issuers have “opt-out” options to help you avoid them. If you exceed a limit when you have opted out of overlimit fees, your transactions will be declined.

Tips to Avoid Going Over Your Credit Limit

Having a plan to avoid extending credit beyond a limit can help prevent a major financial headache. The first step is to educate yourself:

Be Aware of Your Credit Limit

Know what your credit limit is. Knowledge is power and you can equip yourself to avoid the consequences of an overlimit by knowing where the limit is. Log onto your online account or check a recent billing statement to find your card’s credit limit. You can also call the card issuer.

Credit card issuers may lower or raise credit limits automatically based on regular creditworthiness evaluations, so it’s essential to regularly check your limit to make sure you know what it is.

Opt Out of Overlimit Fees

A card issuer typically needs your permission before charging you credit limit fees. You are not required to provide permission. Instead, opt out of transactions that would put you over the limit. Rather than allowing you to keep making purchases when over the limit, the card will be declined.

Keep Your Balance Minimal

Maintaining a balance below 30% of the credit limit will help your credit improve and help you stay well away from the limit. Though you can reach a limit with one card and use other cards with plenty of available credit to keep your overall utilization down, keeping balances minimal can help regardless by keeping you well away from the danger zone.

Choose To Receive Balance Notifications

Some credit card issuers will automatically issue a text or email when you hit a certain balance on the card. This alert level might be a dollar value or a percentage of the total limit. Speak with the card issuer’s customer service or look through settings in your online account to see if you can have these alerts sent to you to help you avoid creeping too close to a limit.

Bottom Line

Credit cards offer an excellent way to maintain financial freedom while building credit, but it’s important to use them responsibly. Responsible credit use involves maintaining balances much lower than credit limits. Knowing the limit on your card and keeping your balances much lower can help you maintain better credit and avoid overlimit fees. Always make payments on time and in full to avoid debt and damage to credit history.