Do Credit Cards Let You Go over the Credit Limit?
With all of the different credit card options available, credit limits can be somewhat confusing due to their wide range and variability. Most credit cards come with a credit limit—a virtual cap on the amount of money you can charge to the card. These limits vary widely as they are set based on your creditworthiness and the specific card you have.
While most credit card users may be aware of their credit limits, uncertainty may exist regarding whether credit cards allow you to go over your credit limit in emergency situations. When an emergency arises, you may find yourself needing more money than your credit limit will allow.
So, it is natural to ask—do credit cards allow you to go over your set credit limit?
How are Credit Limits Determined?
Understanding how credit limits are determined will help answer that question. While the process varies among different card issuers, credit limits are determined on a case-by-case basis based on a set of financial and historical metrics. These criteria may include credit score, annual income, debt-to-income ratio, repayment history, and credit utilization. While credit score is the most well-known credit limit criteria, it is important to be aware of the other criteria when applying for a new credit card.
Can I go over my Limit?
In general, credit cards do not allow you to go over your credit limit. These automatic blocks exist to protect the issuing bank from cardholders charging more than they can realistically pay back within their billing period and limit potential fraud transactions on the account.
However, most credit cards allow you to “opt-in” to allow over-limit transactions, similar to what you might do with a checking account or debit card. In this case, you authorize the credit card company to charge over-limit fees in order to allow you to spend more than the limit on your card. Card Issuers must follow strict guidelines when offering their over-limit transaction option to cardholders due to the Credit CARD Act of 2009.
The Credit CARD Act of 2009
Prior to 2009, there were few universal consumer protection policies regarding over-the-limit transactions and associated fees that a credit card issuer could charge. When a consumer applied for and used a card they were automatically subjected to over-limit fees, if they went over. If you did happen to go over your credit limit you could have been charged the over-limit fee for each transaction after you went over your limit. This could add up quickly before you even knew you had gone over. If the over-limit fee at the time for your card was $35 and you paid for gas, went in and paid for a drink, and then went to buy groceries all on your card, you could have racked up $105 in overdraft fees before getting home.
This is one of the reasons why the Consumer Financial Protection Bureau passed the Credit Card Accountability and Disclosure Act of 2009, which provided protocols for over-the-limit transactions as well as other consumer protections. The Credit CARD Act of 2009 was designed to offer consumers better credit card disclosures and to reduce hidden fees that many cards had at the time, much like over-the-limit fees. Card issuers were required to be more upfront with the types of fees that a consumer may incur using their card.
As a result, the Credit CARD Act of 2009 created the default position that consumers cannot go over their credit limits, and, therefore, credit card issuers cannot charge over-the-limit fees without the consumer opting in first. If the consumer attempted to make a transaction that would put them over the limit, and they had not opted into over-the-limit fees, the card would simply decline at checkout. While over-the-limit fees used to cost consumers billions of dollars per year, these new protocols created protection barriers for credit card users against undisclosed fees.
Below are the main consumer impacts of the Credit CARD Act of 2009, in regards to over-the-limit fees:
- Credit card issuers cannot charge over-the-limit fees without consumer permission
- Over-the-limit elections should be a separate provision not tied to other features in the credit card application process
- Methods of opting-in vary by card—it can be a separate section during the application process, an independent online form, or an agreement made over the phone or email
- Enhanced consumer disclosures in regard to fees, mandatory minimum payments, and changes in interest rates
- Over-limit fees are now deemed ‘essentially extinct’ by the Consumer Financial Protection Bureau
Overall, the Credit CARD Act of 2009 made credit card policies more transparent and understandable for consumers and implemented protections against undisclosed fees. When filling out an application for a new credit card, make sure to read all terms and conditions closely and keep an eye out for an over-the-limit election form.
If you opt-in to go over your credit card limit, you are granting the credit card issuer permission to charge you associated over-limit fees in order to allow you to spend more than the limit on your card.
Opting In for Over the Limit Fees
If you opt in to allow your account the ability to go over the limit should you need to, be sure that you understand the associated fees specific to your card. These fees vary from card to card and it’s important to know that if you allow over-the-limit spending on one of your cards that adding the same option to a different card may not mean the same fees.
In addition to over-the-limit fees, there may be other fees and penalties associated with going over your credit limit, such as an increased interest rate (APR). Your credit card provider may also increase your minimum monthly payment to match the amount of additional money you borrowed. For example, if your limit is $1,000 and you spent $1,100 on your card during your billing period, you may have to pay $100, your over-the-limit fee plus whatever your minimum monthly payment would have been.
How to Avoid Going Over Your Credit Limit
Ideally, you should never go over your credit limit. Even if you have opted in for your cards over-the-limit option, spending over your credit limit could result in getting your transaction declined, incurring steep penalty fees, and possibly lowering your credit score. With mobile credit card apps and other tools, there are many tools available to help you avoid spending over your credit limit.
To avoid going over your set credit limit, follow the tips below:
- If possible, apply to raise your current limit to accommodate your future needs. If you have had your credit card for 6-12 months and have made your payments on time every month, you may qualify for an increased credit limit. Ask your creditor to reevaluate your account, and then you may be able to have more funds available for emergency situations.
- Keep track of your credit card balance. While most credit card companies now have mobile apps and websites where you can monitor your balance online, you can’t always assume this data is accurate and up to date. To make sure you are on top of your balance, it is best for you to monitor your spending on your own. Many issuers help by offering text or email alerts when your balance reaches a certain level. Take advantage of these alerts which will help you control your spending.
- Have a spare credit card set up for emergency situations. This should be a card that has few if any, fees and a low-interest rate. You can keep this card in the back of your wallet. Just make sure you don’t spend money on your emergency card until necessary in order to prevent confusion and keep your payments current.
- Only spend the money that you already have. While it is easier said than done, you should think about your credit card as another way to spend money that you already have in the form of a debit card or checking account. Don’t rely on your credit card to get you by, but maintain a savings account for your emergency funds and try not to make a lot of unnecessary transactions on your credit cards.
- Pay off your balances quickly. While you can pay the minimum monthly payments on your credit cards, this will cause you to incur interest fees and could lower your credit score if your balance is too high. Paying your balances off quickly will help you maintain a good credit score and will ensure funds are available when needed.
It’s always best to avoid going over your credit card limit. If you have to go over the limit, make sure you pay back the balance right away and get back on track with your credit card account. Contact your card company to find out if you have an overdraft option on your credit card, and then you can make a plan from there. As always, review credit card terms and conditions carefully so you know what your policies are.