At a Glance
Exceeding your credit limit can have serious consequences for your financial health. It can result in additional fees, damage to your credit score, and potential restrictions on your credit card usage. Understanding the implications of going over your credit limit is essential for responsible credit card management. In this article, we will explore what happens when you exceed your credit limit, how it can affect your credit score, whether you should go over your credit limit, and provide tips to help you avoid exceeding it.
In this article, you’ll learn:
Is the average credit limit Americans have access to across all credit cards.
Can you go over your credit limit?
Credit limits are set by credit card issuers to determine the maximum amount you can borrow. Generally, you are not allowed to spend more than your credit limit. However, some credit card companies may offer the option of going over your credit limit, but this usually comes with penalties, such as over limit fees. It’s important to check the terms and conditions of your credit card to understand the rules regarding exceeding your credit limit.
What happens if you go over your credit card limit?
When you exceed your credit limit, several things may occur:
- Overlimit fees: Credit card issuers often charge over limit fees when you surpass your credit limit. These fees can range from a fixed amount to a percentage of the excess amount, and they can add up quickly, increasing your overall debt.
- Transaction denial: Some credit card companies may decline transactions that would put you over your credit limit. This means that even if you attempt to make a purchase that exceeds your credit limit, it may be declined.
- Negative impact on credit score: Going over your credit limit can negatively affect your credit score. The credit utilization ratio, which compares your credit card balances to your credit limits, is a significant factor in determining your creditworthiness. Exceeding your credit limit increases your credit utilization ratio and can lower your credit score.
How going over your credit limit can hurt your credit score?
Your credit score is an essential factor that lenders consider when you apply for credit. Going over your credit limit can hurt your credit score in multiple ways:
- Increased credit utilization: Exceeding your credit limit raises your credit utilization ratio, which is the percentage of available credit you are using. High credit utilization indicates a higher risk to lenders and can negatively impact your credit score.
- Payment history: Late payments resulting from exceeding your credit limit can significantly damage your credit score. If you struggle to repay the amount you’ve gone over, it can lead to missed or late payments, which are reflected on your credit report.
- Long-term credit damage: Negative information resulting from going over your credit limit can remain on your credit report for several years, impacting your ability to obtain favorable credit terms in the future.
Should you go over your credit limit?
It is generally advisable to avoid going over your credit limit. The potential consequences, including additional fees and credit score damage, outweigh the short-term benefits of making a purchase that exceeds your credit limit. It is crucial to manage your credit responsibly and stay within your approved credit limit to maintain a healthy financial profile.
Tips to avoid exceeding your credit limit
To prevent exceeding your credit limit, consider implementing the following strategies.
1. Be aware of your credit limit:
Always know your credit limit for each credit card you own. Monitor your credit card balances regularly to ensure you are staying within your approved limits.
2. Opt out of over limit fees:
Contact your credit card issuer and opt out of over limit fees if possible. Some issuers offer this option, which can prevent additional charges when you exceed your credit limit.
3. Keep a minimum balance:
Maintain a buffer or minimum balance below your credit limit to allow for unexpected expenses or emergency situations. This ensures you have some available credit in case you need it.
4. Opt for balance notifications:
Sign up for balance notifications or alerts from your credit card issuer. These notifications can help you keep track of your spending and alert you when you are approaching your credit limit.
The penalty for going over your credit limit varies depending on your credit card issuer. It typically includes over limit fees, potential transaction denials, and potential damage to your credit score. Check your credit card terms and conditions or contact your issuer for specific details.
To request a credit limit increase, contact your credit card issuer and inquire about the process. They may ask for updated financial information or perform a credit check before approving a higher credit limit.
Learn more: How to Increase Your Credit Limit?
Your credit limit does not automatically reset after making a payment. It remains the same unless you request a credit limit increase from your credit card issuer.
While making additional payments can reduce your outstanding balance, it may not directly increase your credit limit. You typically need to request a credit limit increase from your credit card issuer for a higher limit.