Can you go over your credit limit?

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Can you go over your credit limit

Credit cards have a predetermined limit you are allowed to charge to the card. As you use your card, purchases are subtracted from your available limit. The issuing credit card company determines your credit limit through an underwriting process. This process varies among companies but generally includes reviewing factors like the applicant’s credit score, history of credit card usage and income level.

What happens if you go over your credit limit?

It’s important to be mindful of your credit limit. If you attempt to make a transaction for more than your available credit limit, your credit card issuer may allow the charge to go through or they could decline the transaction.

Your transaction could be declined

Since the limit is the maximum amount you can spend, credit card companies can decline the entire charge, even if the amount is only slightly over your limit. If your purchase is declined, you’ll need to use a different payment method for the purchase – or not make the purchase at all . Some credit card issuers will approve purchases case-by-case, but typically cost of exceeding your limit outweighs the convenience.

You could be stuck with fees

If the credit card issuer allows the purchase, you could be hit with costly over-the-limit fees. The fees can range based on the company but are usually around $35. It’s important to note that federal law prohibits credit card issuers from charging an over-limit fee unless you’ve opted to have over-the-limit transactions processed. You’ll want to check your credit card agreement for details.

Your interest rates could increase

Exceeding your credit limit impacts your credit worthiness. If you continue to exceed your credit limit, the issuer may raise your interest rate. This penalty APR can be much higher than your typical interest rate and will cost you more over time than the one-time fee.

Your credit limit could go down

Credit card companies aim to reduce their risk. Going over your credit limit can indicate you are struggling financially and may be unable to repay your debt. Instead of allowing you to continue spending, they’ll lower your limit. When your limit is cut, there could be a snowball effect in terms of the impact this has on your credit score.

Your credit score could drop

Going over your credit limit increases your debt-to-income ratio, a key factor in determining your credit score. Most importantly, exceeding your credit card’s limit can put your account in default. An account in default will have a substantial negative impact on your credit score.

Your credit account could close

If you are in default, this is often grounds for your credit card issuer to suspend or close the account. The balance becomes due in full, and your credit score will suffer from the involuntarily closed account.

Should you go over your credit limit?

Although you may technically be able to surpass your credit limit, it’s never a good idea. Generally, keeping your credit card utilization below 30 percent is best. This means you should avoid using more than 30 percent of your credit card’s available limit.

Tips to avoid going over your credit limit

Overspending and maxing out your credit card can destroy your credit and cost you money in extra fees and higher interest rates. If you need to make a large purchase on your credit card, consider the following ways to avoid exceeding your credit limit.

Review your credit card balances regularly

By checking your credit card statement at least once a week, you can stop balances from getting out of control. If you notice your balance creeping up, stop using the card.

Pay off your balances as quickly as possible

By paying off your purchases immediately after charging, you’ll never have to wonder if you are too close to your limit. Paying your card off in full is a surefire way to avoid interest.

Request a credit limit increase

Contact the credit card company to request a credit limit increase. A credit limit increase is a realistic possibility for customers with established timely payment history, low utilization, and sufficient income. However, approval is at the credit card company’s discretion and based on the information in your credit report. Keep making your payments on time and avoid charging too much to increase your chances of an increase.

Apply for a balance transfer credit card

A balance transfer allows you to move the outstanding debt from one credit card to another card. Balance transfer credit cards often offer significantly lower promotional interest rates and better benefits, such as a rewards program to earn cash back or points for everyday spending.

Review your credit report

You can request a free copy of your credit report from all three bureaus, Experian, Equifax, and TransUnion, by visiting annualcreditreport.com. Monitoring your credit report allows you to check for any discrepancies or fraudulent accounts that could impact your credit score.

Decide on a monthly charging amount

Determine the maximum charge for your card and stick to it if you want to keep your credit utilization ratio under 30%. If the credit limit on your card is $1,000, your cap will be $300.

The purchase isn’t worth the credit consequences  

Spending more than your available credit limit is a possibility but not an option you should exercise. There are much more cost-effective alternatives. Maintaining your credit score is the key to credit limit increases and lower interest rates. 

FAQs

What happens if you spend over your credit limit?

Depending on your credit card agreement, your purchase may be declined, or it may be approved with an over-the-limit fee. Exceeding your credit limit can damage your credit and put the account in jeopardy.

Can you overcharge a credit card?

You can overcharge an account by spending more than your available credit limit. The monthly interest fees may put you over the limit if you are too close to your limit but haven’t exceeded it.

 Is it okay to go over your credit limit once?

Mistakes happen, but you should take steps to avoid going over your credit limit. Even maxing out your card once can have lasting credit implications.

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