An overdraft is a term that refers to spending more money than what is available in your checking account. As your credit card is not your checking account, you can’t technically overdraft it. However, you can exceed your credit limit, which can have similar consequences to an overdraft. For example, if you’re enrolled in an over-the-limit program, some credit card companies will allow you to go over your credit limit in exchange for a fee, just like checking accounts can charge an overdraft fee for allowing you to complete a transaction when you don’t have the funds to cover it. Exceeding your credit limit may cause purchases to get declined and can damage your credit score.
Credit cards have become a valuable financial tool for many of us, something we use every single day. It’s enticing to be able to get anything we want at the swipe of a card. However, eventually, the bill comes for all that spending, and if you’ve been spending too much without paying down your bill, you might run into a problem with over-the-limit fees.
You get charged an over-the-limit fee when you’ve exceeded your credit limit. That being said, you have to opt in to these fees and enroll in an over-the-limit program before your credit card company is allowed to charge you for them. This will allow you to complete transactions even though you don’t have any available credit to use. You can’t technically overdraft a credit card, as this term applies more so to spending more money than what’s available in your checking account.
Overdraft vs. over-the-limit
Before discussing the dangers of exceeding your credit card’s limit, first let’s clarify a couple of terms. Though both of these words sound similar, they each have a slightly different use within the financial world.
- Overdraft. An overdraft occurs when you don’t have enough money in your bank account to pay for a purchase, but your bank or credit union covers the payment anyway. When this happens, the financial institution will charge you a fee and make you pay back the amount of money you overspent, a process also known as overdraft protection.
- Over-the-limit. If you’re “over-the-limit,” then you’ve gone over your credit limit for that particular credit card. If this happens, you’ll be charged over-the-limit fees, which are a way credit card issuers attempt to manage risk. Therefore, an over-the-limit fee is a penalty charged to credit card customers who breach their credit limits. By charging an over-the-limit fee in response to what credit card companies see as risky transactions, they can penalize this behavior while also generating additional revenues.
When you spend more than you have available, you’ll be subject to overdraft or over-limit fees. However, your bank or credit union cannot charge you unless you have agreed, or “opted in,” to these fees.
If you choose to opt in to overage fees, you are usually allowed to continue to make purchases with your credit card, even if you do not have enough funds at the time of the transaction. However, you will likely incur fees on transactions in order to settle that negative balance later down the road.
If you’re looking for a different checking account without overdraft fees, consider some of the ones below.
How can you spend more than your credit card limit?
To go over your credit limit, you first have to speak with your credit card issuer and accept the additional fees involved. This is similar to a debit card’s overdraft protection, which allows you to spend more than the actual amount that is in your checking account. Your financial institution will, in effect, advance you the amount. In exchange for this, you will have to pay the institution interest on the amount that spent over your limit.
Since an overdraft basically establishes a personal line of credit, the amount that your financial institution will allow you to borrow will depend on your creditworthiness in addition to the institution’s own policies.
What happens if you don’t opt into these fees?
What happens if you try to go over the limit on your credit card?
If you try to exceed the limit of your credit card, several things can happen that will likely put you in a precarious financial position.
Declined purchase transactions
In most cases, if a purchase is going to push you over your credit limit, your transaction will be declined. You will either have to use another card with a balance that is under its credit limit or use a different method of payment. Otherwise, you won’t be able to make the purchase.
This is due to the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. This law states that card issuers can’t charge any fees that are over the customer’s prescribed limit unless you’ve specifically consented in advance to the transactions that will take you over your limit.
Your card issuer may offer you the ability to go over your credit limit with programs such as over-the-limit coverage or certain protection plans. If you choose to enter into this kind of program, your card issuer can authorize card transactions that exceed your credit limit.
However, many of these programs come with extra fees. For example, the first time you go over your limit, you can be charged a fee of up to $25. After that, the fee can go as high as $35 if you go over your limit for a second time within six months from the last time you exceeded your limit.
Additionally, if your balance remains above your credit limit in your next billing cycle, you could be charged the over-the-limit fee again. And, if you can’t make the minimum payment, you might be hit with late fees or increased interest rates.
Decreased credit score
Another potential consequence of an overdraft on your credit card is a drop in your credit score. Your credit utilization ratio, or how much of your available credit you’re using, makes up one-third of your credit score. Many experts recommend keeping your overall credit utilization ratio below 30% of your balance, which will be nearly impossible if you overdraft your card.
How to avoid exceeding your credit card’s limit
There are several steps you can take to avoid an over-limit on your credit card altogether — not only to help prevent the situation in the future but also to improve your credit.
Make additional repayments
By making more than the minimum payment each billing cycle, you can ensure that you aren’t accruing a negative balance on your credit card and going into debt. Any amount that you can pay above the minimum will help reduce your credit utilization ratio, which will in turn help boost your credit score.
Request a credit limit increase
Another way to reduce your credit utilization ratio, and to ensure that you don’t wind up with an over-limit issue on your credit card, is to request a credit limit increase. You can usually request a bigger credit limit by calling your credit card issuer, though some card issuers will let you submit a credit limit increase request through your online account.
By raising your credit limit, you can keep your balance low and avoid dealing with an over-limit fee if you’re near your limit. This will also help lower your credit utilization ratio, which will boost your credit score.
What should I do if I go over my credit limit for my credit card?
If you overdraft your credit card, you should stop using it in order to avoid incurring additional overdraft fees from your credit card company and so that you won’t have to deal with further declined transactions.
Can I overdraft on my Capital One credit card?
No, you cannot overdraft on your Capital One credit card. However, Capital One does offer an over-limit line of credit, meaning that instead of paying an overdraft fee, Capital One will charge you interest on the amount you borrowed for the amount of time the bill is outstanding.
What happens if a credit card is overdrawn?
Technically, you cannot overdraw your credit card as “overdraw” refers again to money withdrawn from a bank account. Instead, a cardholder may attempt to make over-the-limit purchases, which may be declined unless the cardholder opted in to an over-the-limit fee program.
Will Credit One let you go over the limit?
Credit One does not charge an over-limit fee when you exceed your credit limit. That said, if a cardholder’s balance goes above their approved credit limit, Credit One will not allow any further transactions on the account.
Can you get a cash advance if your credit card is maxed?
Since your credit card’s cash advance limit is tied to your card’s credit limit, you typically can’t get a cash advance if your card is maxed out. Most credit cards will let you borrow a set amount of cash as an advance that you then pay back with interest. Typically, you can only borrow up to your card’s cash advance limit, and not your full credit limit. If you want to find your cash advance limit, you can check your credit card statement or contact your credit card company.
- An overdraft occurs when you don’t have enough money in your checking account to pay for a purchase. In some cases, your financial institution will charge you an overdraft fee. They might also charge you a fee and make you pay back the amount of money you overspent, a process known as overdraft protection.
- Going over limit on your credit card occurs when your account balance is too high compared to your credit limit. If this happens, you’ll “max out” your card when you attempt to make a purchase.
- An overdraft on your credit card can lead to declined purchase transactions, over-the-limit fees, and a decreased credit score.
- If you go over limit, you should stop using the credit card to avoid the additional fees that might be charged by your credit card company.
- You can only exceed your credit limit if you “opt-in” to receive over-the-limit fees. You may hear a similar permission needed for debit cards, known as “overdraft protection.”
View Article Sources
- I went over my credit limit and I was charged an overlimit fee. What can I do? — Consumer Financial Protection Bureau
- Overdraft and Account Fees — Federal Deposit Insurance Corporation
- Does Overdraft Affect Your Credit Score? — SuperMoney
- 6 Ways to Avoid Being Charged Overdraft Fees — SuperMoney
- Can Opening or Closing Your Bank Account Hurt Your Credit? — SuperMoney
- Why Is My Debit Card Declined When I Have Money? — SuperMoney
- Can You Reopen a Closed Credit Card? — SuperMoney
- 2021 Consumer Credit Card Industry Study — SuperMoney
- Best Checking Accounts With No Overdraft Fees | August 2022 — SuperMoney