What Happens If You Go Over Your Credit Limit?

Credit card balances hit record highs in late 2022.

If you’re one of the many people whose credit card balance has increased lately, you probably know there are uncomfortable consequences. Perhaps your monthly payment went up or your credit scores have dropped as a result.

But if your balance grows so high that it exceeds your credit card limit, you can experience even more severe and long-lasting consequences. Going over credit limit can result in credit card fees, a permanent increase in your credit card interest rate or even having your account closed.

Can You Go Over Your Credit Limit?

It is possible to go over your credit limit.

If your creditor allows overlimit spending — which some do — you can complete a purchase that causes your balance to go over your set spending limit. If the creditor doesn’t allow it, your transaction will be declined. Because of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act), you can also choose to disable the overlimit spending option on a credit card yourself.

Consequences of Going Over Your Credit Limit

What happens if you go over your credit card limit? The consequences range from paying a minimal fee to experiencing long-term financial and credit impact. When you spend over your limit, you could experience any of the following:

• Declined transaction: Your transaction can be declined by the credit card issuer.
• Penalty APR: The creditor can increase your annual percentage rate (APR), making it more expensive to repay your balance in the future.
• Fees. If you’ve opted to allow overlimit spending, you can spend over your limit, but you’ll likely be charged $25 credit card fee the first time it happens and $35 if it happens again within six months.
• Credit limit reduction: The credit card issuer can make the problem worse by reducing your limit when your balance goes overlimit, or even if you’re just nearing the limit.
• Account closure: If you spend over the limit multiple times, the creditor can decide to close the account. Note that you can still be charged interest and fees after an account is closed.
• Lower credit scores: When your credit card balance increases in comparison to your limit, your credit scores take a hit. Having an account closed can  cost you points, too.

How Going Over Your Credit Limit Affects Your Credit Score

Going over your credit limit can cause your credit scores to drop. Why? Because overlimit spending increases your credit utilization ratio, which is a factor that accounts for 30% of your FICO credit score. This ratio compares your credit limits to your balances:

Credit utilization ratio = (credit card balance / credit card limit) x 100

As your limits increase, your credit utilization ratio goes up and you can expect your credit scores to drop. According to FICO, the ideal ratio is between 1% and 10%. Going over credit limit pushes your ratio above 100%.

There are a few other ways your credit score can be impacted negatively by spending over the limit. If the credit card issuer decreases your limit, you can see a further drop in your scores. If your only credit card account is closed, your mix of credit (which makes up 10% of your FICO scores) will also be negatively impacted.

Alternatives if Your Credit Limit is Too Low

If your credit card balance is approaching your limit, it’s important to take preventative action. Here are some strategies to avoid going over the limit:

Request a Credit Limit Increase

You can avoid going overlimit and reduce your credit utilization ratio by asking your creditor to raise your credit limit. They may say “no,” but you’re likely to get a “yes” if your credit is in good condition and if your income has increased since you opened the account.

You can make your request for a limit increase online, over the phone or in person, but you’re less likely to experience a sales pitch for a new product (and have a damaging, hard pull on your credit report) if you submit your request online.

Apply for a Balance Transfer Credit Card

Moving your credit card balance to a balance transfer credit card can buy you some time. That’s because balance transfer cards come with 0% APR on the credit card debt you transfer to the account for a set period of time, usually 12-18 months.

During the 0% APR period, you can pay down your balance faster since you won’t have to pay any new interest charges. In other words, 100% of your payment will go toward reducing the balance on your debt. Just make sure to consider how much the balance transfer fee is before you apply. Most creditors charge a fee of 3%-5% of the total transfer amount.

Tips To Avoid Breaching Your Credit Limit

If you’re not keeping an eye on your finances, you might find your credit card balance creeping steadily upward. To avoid approaching breaching your credit limit, stick with these healthy financial habits:

Pay off Balances as Quickly as Possible

Unlike loans, credit cards don’t have a set payoff date, which means the minimum payments are usually much lower. At the same time, credit cards interest rates are nearly twice as high as personal loans: currently averaging 20.68% (credit cards) versus 11.48% (personal loans).

That means you can potentially make the minimum payment on a credit card for the rest of your life, and never make a dent in your balance.

Instead of putting off your credit card debt and letting the interest charges rack up, try putting any extra money you have toward paying off the credit card with the highest APR.

Review Your Balances Regularly

Take a look at your credit card statement monthly, if not weekly. By doing so, you can keep an eye on creeping balances, catch bad spending habits before they get out of control and plan ahead to avoid surpassing your limit.

You can view your credit card transactions by logging into your online account or viewing your paper statements.

Turn on Notifications From Your Card Issuer

Most card issuers give you the option to sign up for account alerts.  The free alerts can inform you when you’re close to reaching your credit limit and help you stay aware of things like upcoming payment due dates and high-cost transactions..

Opt Out of Over-Limit Fees

Take away the temptation to spend over your limit by opting out of over-limit fees. When you opt out, you won’t be able to complete any purchase that would push you over the limit. Instead, the transaction will be denied.

Credit Counseling Can Help if You Are Struggling Financially

If you’re stuck in the dance of paying down credit cards and then charging them back up again, consider working with a professional to end the cycle.

Nonprofit credit counselors are financial professionals who provide one-on-one coaching and education services for free or low-cost. Yes, you can find a temporary solution on your own, like opening a new credit card or taking out a loan, but a credit counselor can offer long-term solutions, including debt management tools and personalized tips for paying off debt.