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A credit card limit is the maximum amount you can charge to your card. Your credit limit is set by your credit card issuer to prevent you from incurring more debt than they're willing to cover.
It's possible to charge more than your credit line allows, however. But if you go over your credit limit, your purchase may be approved or denied. If it's approved, you may have to pay fees or a higher interest rate. Here's a closer look at what can happen when you go over your credit limit.
How Does Going Over Your Credit Limit Work?
If you attempt to make a purchase that would cause you to exceed your credit limit, one of two things will happen: Your transaction will be approved or it will be denied.
1. Your Purchase Will Be Approved
Some credit card companies approve transactions above the credit limit on an individual basis. For example, your transaction may be approved if you have a strong payment history with your card issuers.
Your transaction may also be approved if you opt in for over-limit protection—but not all cards offer this. As its name suggests, over-limit protection is a feature that may allow your transaction to go through even if it causes your account balance to surpass your credit limit. Keep in mind, however, that going over your credit limit will likely result in a fee.
Regardless of whether you're enrolled in over-limit protection, exceeding your credit limit could come with costly repercussions, such as:
- Fees
- Increased interest rate
- Larger minimum payment requirement
- Requirement to immediately repay the overage
- Card cancellation
2. Your Purchase Will Be Declined
If you haven't opted in to allow overdrafts and the fees that come with them, your transaction may be declined. Your transaction may also be denied if your card issuer doesn't want to take on the added risk. In these cases, your credit card company is forbidden by law from charging you fees for the overage.
While a declined transaction may be awkward or embarrassing at the cash register, it could help you avoid incurring a fee or any of the aforementioned negative outcomes of exceeding your credit limit.
How Going Over Your Credit Limit Can Affect Your Credit
Going over your credit limit can have a negative impact on your credit due to your credit utilization rate. Your credit utilization rate is the amount of your available revolving credit you're using on a per-card or total basis. The amount you owe on your accounts makes up 30% of your FICO® Score☉ for good reason: Credit scoring models tend to view higher credit utilization ratios as an indication you might be financially strapped and a risk to the lender.
To reduce your credit card balance's impact on your credit scores, it's wise to keep your credit utilization ratio below 30%, but the lower, the better. Those with the highest credit scores tend to have a credit utilization in the single digits.
But if you spend, say, $11,000 on a credit card with a $10,000 limit, your credit utilization for that card would be over 100%. If the card is your only revolving credit account, or if you have other accounts with balances near or beyond their maximum limits, your overall credit utilization ratio could also be near or even over 100%. The effect of such high credit usage could be severely harmful to your credit score.
How to Avoid Spending Over Your Credit Limit
There are a number of actions you can take to safeguard your account against overspending beyond your credit limit, such as:
- Disallow overdrafts. Perhaps the most straightforward way to avoid spending above your card's credit limit is to disallow overdrafts when you sign up for your card. Similarly, if you've opted in to permit overdrafts, consider updating your account online or over the phone to disallow the option to allow overdrafts.
- Set up alerts. Many credit card issuers offer the option to set up email or text alerts that let you know when your account balance is getting close to its limit. Having alerts in place could help you avoid making transactions that exceed your limit. Alternatively, you may not need notifications if you have the habit of regularly checking your account balances.
- Request a credit limit increase. If you have a strong history of on-time payments on the account and sufficient income, your credit card issuer may approve a credit line increase to give you some extra breathing room. The additional credit could also lower your credit utilization ratio, which may positively affect your credit.
- Follow a budget. Set up a budget for your credit card that ensures you're managing your balance appropriately. While you're at it, you might set up autopay to ensure your monthly credit card bill is paid on time. Ideally, your budget allows you to pay off your credit card balance in full each month to avoid interest charges and to keep your credit utilization ratio low.
Paying Down Your Balances Could Improve Your Credit Score
Maxing out your credit cards, or even worse, having balances over your credit limit, can drag down your credit score. Thankfully, paying down your balances can have the opposite effect, and credit scores often react quickly when you pay down high card balances. You can track your progress and see suggestions for improving your score by monitoring your FICO® Score for free through Experian.