What Happens If I Go Over My Credit Limit But Pay It Off?
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Summary:
Often, when you try to make a purchase that exceeds your credit limit, your credit card will be declined. But sometimes, it is possible to go over your credit limit. This depends on the credit card company, your card’s terms of service, and whether or not your card offers over-limit spending. Unfortunately, over-limit spending can incur unwanted fees and affect your credit score even if you do pay it off; thus, you should avoid it if possible.
Are you familiar with all of the limits and nuances related to the assortment of credit cards in your wallet? Most likely, you are familiar with the brand, the overall credit limit, and perhaps some of the perks and benefits that come with consistent usage. However, if you are uncertain about what happens when you go over the credit limit of a particular card, then you may want to look into it. You could face high fees or damaged credit for exceeding the limit. You could even lose your reward benefits or have the card canceled altogether. Managing your credit limits is an important part of personal finance, so let’s go through everything you need to know to stay on track.
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What happens if I go over my credit limit?
These days, there is a good chance that your card will be declined if you exceed the credit limit. It didn’t used to be this way. Before the 2008 financial crisis, banks and credit card issuers were a lot more willing to let you go over your credit limit. However, this has become rarer due to government regulation passed in 2009 that stipulates credit card holders must agree to overspending fees and penalties.
That is not to say that no credit cards will allow you to go over your spending limit; some will. Tread carefully, however, as excessive debt, a higher credit utilization ratio, and a lower credit score might await you if you overspend. If you are familiar with your credit card limit and need to exceed it for whatever reason, here is what might happen.
Your card could be declined
The most common outcome is that your credit card will be declined, which can be embarrassing, but at least it won’t cost you anything. Remember, in the past, credit card issuers were much happier to let you overspend and gouge you with fees. This all changed with the Credit Card Accountability Responsibility and Disclosure Act of 2009, which restricts credit card issuers from engaging in “predatory” fees and penalties.
You are allowed to exceed your limit, but fees apply
If your card isn’t declined, it might be because your credit card issuer allowed you to go over your limit. Some issuers allow you to opt in to over-limit spending, which is similar to overdraft protection on a debit card. The Credit CARD Act stipulates that all credit card holders must opt-in (essentially agree to) fees associated with over-limit spending. It also stipulates that the over-limit fees should be “reasonably proportional.” The penalties are capped as follows:
- The first-time over-limit fee is capped at $25
- The second-time over-limit fee is capped at $35
- Only one fee is allowed per billing cycle
- The fee cannot exceed the amount that was over the limit (nice if you only went over by something like $5)
Pro Tip
In February 2023, the Consumer Financial Protection Bureau announced that it wanted to implement new rules associated with fees financial institutions charge for late payments and overdrafts. As the rules currently stand, late fees can be as high as 100% of the minimum payment. The proposal would cap fees at $8. The law is currently under review, with some questioning if the law applies to all credit card penalty fees. If so, there could be a further cap on fees associated with an overdraft.
The credit card issuer requests you pay sooner
It’s possible that the credit card issuer will allow you to complete the transaction, with or without fees, with the understanding that you will pay the balance sooner. You can check on whether or not this is an option via your terms of service with the credit card issuer.
Nothing happens
Sometimes, the credit card issuer will give you a break and let you spend over your limit. This holds particularly true if you have a pristine credit history. However, be aware that it could also be the case that the system malfunctioned, and you were allowed to spend over your credit limit due to an error. Therefore, even if it happened once, don’t assume you get a free pass to spend over your credit limit on multiple transactions. It might be a good idea to call the number on the back of your card and resolve the issue before anything else happens.
Why you shouldn’t go over your credit limit
If you have the option of not going over your credit limit, take that option. Although spending money you don’t have to buy your friends and associates drinks you can’t afford sounds tempting, think again. There are downsides to exceeding your credit limit, some of which include:
A negative effect on your credit score
Your credit score allows you to access money from other credit card issuers and loans like mortgages and auto loans. Over-the-limit spending can negatively affect your credit score and make it hard to borrow money (at least with low interest rates) in the future.
If your credit score has been hurt by bad habits in the past, these credit help companies may be able to get you back on track.
Your credit utilization rate goes up
Your credit utilization rate is the amount of credit you use vs. what is available. In the past, the general rule of thumb was to keep your credit utilization rate at 30% or lower. However, these days, many advisors suggest keeping your credit utilization rate around 10%. This ensures that you are not “living on the edge” of what companies might consider an acceptable utilization rate. If you are approaching your limit, especially if it’s on multiple cards, your rate will be high.
Your credit limit could be reduced or your interest rates raised
Going over your credit limit affects the terms of service you have with your provider, and you can be penalized. Credit card issuers have been known to change both your credit limit and raise your overall interest rate if you are late and incurring fees and penalties. This could have an extreme effect on your willingness or ability to use this card in the future.
You could lose perks and rewards
Credit card issuers might be inclined to punish you for going over your credit card limit by subtracting perks and rewards from your account. This could consist of already accumulated points/cash back or not letting you access future perks and rewards.
Your card could be canceled
If you continually overspend past your credit card limit, the credit card issuer has the option of just canceling your card. Although this is seen as a method of last resort by a credit card company, it can happen. If you enjoy using the card, be careful.
How to manage your credit card spending limits
So you have multiple credit cards and want to make sure you don’t spend over the limit? Follow these tips:
Make a list of all your cards and their overspending policies
Make a list of all the credit cards in your wallet and include each card’s spending limit. Read the terms of service for each credit card and list them along with the fees and penalties for both late payments and overdrafts.
Request increases in credit if needed
If you feel that you need more credit and have no problem keeping up with the payments, request more credit in the form of a credit limit increase. If you already have a good credit history with the credit card issuer, then a credit limit increase is usually granted quite easily.
Request more cards
There are all sorts of credit cards out there with different terms and unique perks and rewards. If you need more credit and don’t want a credit increase or to opt-in for over-the-limit spending, then it should not be hard to get another card.
Pro Tip
If you have struggled with credit limits before, don’t think that you will never be able to have a credit card again. Even those with a recent bankruptcy history can get a card quite easily, according to Adrienne Hines, a bankruptcy attorney based in Ohio. “Lenders rush to lend to people coming out of bankruptcy for a few reasons,” she says. “If someone has filed for bankruptcy, they cannot file again for eight years. This means they’re stuck with their new debt for a long time.”
She adds that creditors KNOW people feel unsafe without access to credit and people often feel “rich” after filing for bankruptcy. “Not having to pay $900 a month anymore would clearly allow someone to feel like they can handle new debt,” she says.
Use a balance transfer credit card to relieve other cards
A balance transfer credit card is a credit card that allows you to move previous debts to a new card. How much you can transfer depends on your own credit history and ability to pay. However, if you are close to the limits on your credit cards, a balance transfer credit card can relieve some pressure. Compare your options below.
FAQ
Can I go over my credit limit and pay it back?
That all depends on the terms of your card. If you opted in for over-the-limit spending, then chances are you can pay it back with possible fees and penalties. Some credit card issuers will require that you pay early to avoid penalties and fees. If you are a repeat offender, the consequences could be dire even if you pay it off immediately. This could include losing your rewards, a reduction of your credit limit, and even canceling your credit card.
What happens if I accidentally go over my credit limit?
If you accidentally went over your credit limit and you have fees tacked on to your account, then call your credit card issuer. You might be able to explain yourself and have the fees removed.
Key takeaways
- Although your card can simply be declined, it is sometimes possible to go over your credit limit.
- Due to the CARD Act of 2009, you have to opt-in to over-the-limit protection and agree to any fees before you can go over your credit card limit.
- Over-the-limit spending can have consequences, including a negative effect on your credit report, an increased interest rate, a reduction of your credit limit, and even your card being canceled.
- Maintaining a healthy credit card balance by managing your credit cards properly can eliminate the need for you to go over your credit limit.
- You can always request an increased limit or open another card if you don’t feel like you have enough available credit.
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