What’s the penalty for going over my credit card limit?

If, like many other consumers, you juggle more than one credit card, you might find it difficult to keep track of each one’s credit limit. So, what happens if you end up spending more than the credit limit you have available on any of your cards?

The Credit CARD Act of 2009 provided consumer protections that weren’t available prior to the legislation, including for over-the-limit transactions. And the Consumer Financial Protection Bureau has spelled out what requirements must be met for a card issuer to OK your over-limit transaction and charge you for it.

Can you go over your credit limit?

The default position is that you cannot go over your credit limit, and if you accidentally charge your credit card over the credit limit, your transaction would be declined. However, you can actually go over your credit limit if you opt into an over-limit arrangement. After that, transactions that exceed your credit limit will be authorized, and you acknowledge that you may be charged a fee for it.

You do not opt in merely by applying for a credit card. When you apply for the card, the issuer could provide a notice that allows you to go with the over-the-limit arrangement. The opt-in should be a separate provision not tied to other features of a credit card application.

An issuer could also send you a separate form, with your monthly statement or other communication, to opt in to over-the-limit transactions. You could also call the issuer or email it to affirm your consent.

Further, the card issuer will have to confirm that you have opted in to this feature before activating it on your account. The law prohibits a card issuer from tying a higher credit limit offer to your opting in to the over-the-limit protection. The issuer also cannot require you to opt in as a condition of approving your application for credit.

You always have the option to back out of the over-the-limit arrangement. In this case, you are still liable for fines on transactions that put you over your credit threshold before you opted out. The law doesn’t allow an authorized user on a card — who does not share joint responsibility with the cardholder on the account — to opt into or withdraw from the over-the-limit protection.

What is the penalty for going over your credit limit?

If you go over your credit limit after opting in, the CARD Act set a $25 limit as a reasonable amount for a first violation, and a $35 cap for any subsequent defaults within a six-month time frame. Of course, these fees are on top of the interest charges you’ll have to pay if you don’t pay your balance in full and on time.

The CPFB capped penalty fees at $30 and $41 as of 2022. In any event, the fine cannot exceed the amount by which you went over your limit. Also, while an issuer can charge you an over-the-limit fee, it can’t impose a recurring periodic fee just for allowing you to opt in to this feature.

What if a recurring or interest charge puts you over your limit?

In certain circumstances, a card issuer might have to OK a transaction that pushes you over your credit limit, even if you haven’t expressly opted in.

For instance, you make a $20 purchase and before this is charged to your account a different recurring charge is posted. When the $20 is subsequently charged, it makes you go over your credit limit. In situations like this, the issuer cannot charge you a penalty for crossing your credit limit.

Another case in point is if interest charges for a billing cycle push you over the credit limit. The issuer cannot charge you a penalty for that, either. Additionally, it’s left to the discretion of a card issuer whether to approve an over-the-limit transaction, even if you have opted into the arrangement. An issuer could also refuse to continue to honor your opt-in request if it sees you as a credit risk at some point.

How going over your credit limit can hurt your credit score

If you go over your credit limit, that begs the question of how well you’re managing your available credit. Opting in for over-limit transactions is not a get-out-of-jail-free card, and there are consequences for going over your credit limit.

For one, the amount of your available credit that you use factors into your credit score as part of your credit utilization ratio. If you max out your card, that could lower your credit score by more than 120 points, according to FICO.

You could also see your interest rates go up if the issuer sees you as a higher credit risk after your over-the-limit spending is reflected in your credit report. If you have multiple credit cards, your other credit card issuers might notice the change in your credit score and raise their rates as well. What’s more, if you decide to apply for additional credit cards in the future, lenders could review your credit reports, see that you have a history of spending over your limit and set your interest rates accordingly.

What are the alternatives if your credit limit is low?

There are a few alternatives you should consider to avoid going over your credit limit or paying the associated over-the-limit fees. One of the most obvious alternatives is to request a credit limit increase from your card issuer. Just be aware your issuer may perform a hard inquiry on your report.

If you have a good credit score and a solid track record of on-time payments, you may have a decent chance of getting the boost. If you’re looking to boost your credit score first, it may make sense to hold off.

Another option is to consider other credit cards you may have. If you have a card with a higher credit limit, you may be able to shift some of your purchases to it as long as it’s not maxed out. If you do this, don’t forget to take into account things like rewards and interest rates. You could also open a new credit card. Keep in mind that this will reduce your average credit age, which impacts your credit score.

Bottom line

Though going over your credit limit is possible, if you opt in to it, it’s best not to. You’ll avoid possible penalties like over-the-limit fees, increased interest rates and a lower credit score.

If your income has risen and you can justify the additional spending, you could ask your issuer for a higher credit limit. Otherwise, you should aim to be responsible with your spending and not view going over your credit limit as a choice.