Can I Still Use My Credit Card If Over Limit?

When a credit card balance surpasses its credit limit, the account is considered “over limit.” This means the amount owed by the cardholder exceeds the maximum borrowing amount the credit card issuer has extended. Going over the limit can trigger a series of events with varying impacts on a cardholder’s financial standing.

Transaction Approval When Over Limit

Whether a transaction will be approved when a credit card is over its limit depends on the cardholder’s “over-limit protection” opt-in status. Federal regulations require consumers to explicitly agree, or “opt-in,” to allow transactions that exceed their credit limit. If a cardholder has not opted into this protection, transactions that would push the balance over the limit will be declined.

If a cardholder has opted into over-limit protection, the credit card issuer may approve transactions that cause the account to exceed its limit. This often comes with an over-limit fee. Even with opt-in status, issuers retain discretion and may still decline very large transactions or those that significantly push the balance beyond the limit. Cardholders can check or change their opt-in status through their online banking portal or by contacting their credit card issuer directly.

Financial Ramifications of Exceeding Your Limit

Exceeding a credit limit can lead to monetary costs, including over-limit fees. Under federal law, if a cardholder has opted in to over-limit protection, the first over-limit fee can be up to $27, and a second fee within six months can be up to $38. This fee cannot exceed the amount by which the credit limit was surpassed; for instance, if a cardholder goes over by $10, the fee cannot be more than $10.

Being over the credit limit also means a larger outstanding balance, resulting in more interest accruing on the debt. Some cardholder agreements may specify that going over the limit could trigger a penalty Annual Percentage Rate (APR), leading to higher interest charges on the entire balance. A higher balance due to exceeding the limit can also increase the minimum payment required each billing cycle.

Credit Score Implications

Exceeding a credit limit can significantly impact a cardholder’s credit score, primarily through the credit utilization ratio. This ratio compares the amount of credit used to the total available credit. When a balance goes over the limit, this ratio drastically increases, signaling higher risk to potential lenders.

Credit utilization is a major component in most credit scoring models, accounting for approximately 30% of a FICO score and 20% of a VantageScore. Financial experts recommend keeping this ratio below 30% to maintain a healthy credit profile. Consistently going over the limit or struggling to manage the elevated balance can also negatively affect payment history, another factor in credit scoring.

Addressing an Over-Limit Balance

When a credit card balance exceeds its limit, taking immediate action can help mitigate negative consequences. A primary step is to pay down the balance as quickly as possible, aiming to reduce it below the credit limit. Even a small payment that brings the balance under the threshold can be beneficial.

Cardholders may also consider contacting their credit card issuer to discuss available options. Some issuers might be willing to work with the cardholder on a payment plan or, in certain circumstances, consider increasing the credit limit, though this should be approached with caution to avoid further debt.

To prevent future over-limit situations, reviewing spending habits and establishing a realistic budget are important. Many credit card companies offer account alerts that can notify cardholders when their balance approaches their credit limit, providing an early warning system to help manage spending proactively.