What Happens if You Go Over Your Credit Limit?

Each of your credit cards comes with a spending limit you're supposed to stick to. But what happens if you go over your credit limit? Let's take a closer look.

How credit limits work

When you get a credit card, you're assigned a spending limit that dictates how much you can charge at once. That limit is based on factors such as your credit score and income. If you have excellent credit and a higher-than-average salary, you may be rewarded with a higher-than-average credit limit.

Once you reach your credit limit, your credit card will generally be declined when you try to use it. For example, let's say you have a credit card with a $5,000 spending limit. If you've racked up $4,800 worth of charges and attempt to charge a $500 purchase, you're likely to have your card declined, since you only have $200 more on your limit before you've maxed it out.

What happens if you go over your credit limit?

Due to the Credit CARD (Card Accountability Responsibility and Disclosure) Act, which was passed in 2009, it's become harder to go over your credit limit. Under that act, you must sign up for over-limit protection before your credit card issuer allows you to exceed your limit.

That protection comes at a cost (fees paid to your credit card company), so many consumers don't opt in. And if you haven't opted in, then your credit card issuer must decline any transaction that causes you to exceed your existing credit limit.

If you've opted in for the option to exceed your credit limit, you'll be charged an over-limit fee for doing so. Your credit card issuer can impose one such fee per billing cycle and only one additional fee in the next two billing cycles.

If you haven't opted in and you attempt to make a charge that will put you over your credit limit, the transaction will generally be denied. The merchant in question will let you know your transaction didn't go through, or if you're attempting to buy something online, you'll be told that your purchase can't be completed.

Consequences of going over your credit card limit

Exceeding your credit card limit can be embarrassing, especially if your credit card is denied in a public place, like a store or restaurant. But there can be repercussions beyond that.

As mentioned, you could face fees for going over your limit. Your credit card issuer might impose a higher interest rate on your account, or even close your account completely. Or, your credit card issuer might lower your credit limit to reduce its risk going forward.

Plus, racking up too high a credit card balance can raise your credit utilization ratio, which measures how much of your available credit you're using at once. If this number is too high, it could result in major damage to your credit score. You don't necessarily need to reach or exceed your credit limit for your utilization ratio to reach an unhealthy level -- but if you've gone over your credit limit, you can bet that your credit score has suffered in the process.

How to avoid going over your credit limit

It's best to avoid going over your credit limit, if possible. Here are a few steps you can take.

Don't just check your balance at the end of your billing cycle

Sometimes, people go over their credit limit because they simply lose track of how much they've spent. It happens to the best of us. To avoid that, make a point to check your credit card balances every week. If you see one of them start to climb, you'll need to be careful with charging expenses until your billing cycle rolls over and you've paid some (if not all) of your balance down.

Stick to a budget

Following a budget can help you avoid going over your credit limit. If you plan your expenses carefully, you may be able to avoid a scenario where your bills exceed your earnings and you're forced to fall back on your credit cards as a result.

Have money in the bank

Another way to avoid going over your credit limit is to have a healthy emergency fund. A good rule of thumb is to save three to six months' worth of living expenses. That way, you won't be forced to charge unforeseen expenses that can't be put on a credit card. Instead, you'll have the option to cover those costs by dipping into your savings account. Of course, an emergency fund can't be built overnight, but you can do your best to complete yours over time.

Pay off existing credit card debt

If you're carrying a balance on your credit cards, you may want to try to pay off your cards before making more purchases on them and instead use cash for the time being. Again, this is something you'd do over time. One good option in this regard is to see if you qualify for a balance transfer. If you can move your existing balances onto a new credit card with a lower interest rate, or a 0% introductory interest rate, your debt could be easier to pay off. And as a bonus, your credit score will improve if you pay off existing debt.

Ask for a higher credit limit

If you're a credit card holder in good standing, you can always ask your issuer to increase your credit limit. A credit line increase is an especially viable option if your income has gone up since you first got your credit card, or if you have a good credit score. Granted, having a higher credit limit could tempt you into more spending. But it can also buy you more protection. In emergency situations, having a higher credit limit gives you more leeway when you have expenses that are out of your control.

Try to stick to your credit limit

Going over your credit limit can have negative consequences. If you've gone over your credit limit, don't beat yourself up. Instead, take steps to avoid having that happen again.

At the same time, do a review of your various credit cards and make sure you know the spending limit of each card. If you don't have that information in the back of your mind, you'll be more likely to charge too many expenses by accident and wind up with a mess on your hands.

Still have questions?

Some other questions we've answered:

• What Is a Good Credit Limit?
• How to Increase Your Credit Limit
• How Credit Cards Work: A Beginner's Guide