Over the Limit Fee Definition: What It Means and How It Works
Understand how over-the-limit fees work, when they apply, and how issuers determine charges based on cardholder activity and authorization rules.
Credit cards have spending limits, and exceeding them can result in an over-limit fee. This charge discourages cardholders from surpassing their approved credit line and compensates issuers for the added risk. While not all issuers impose this fee, it remains a potential cost for those who frequently approach their limit.
Conditions for Fee Assessment
Issuers determine whether to charge an over-limit fee based on a cardholder’s transaction history and account standing. If a purchase exceeds the credit line, the issuer may approve it but does not always apply a fee. Some waive the charge if the overage is small or if the cardholder has a strong payment history.
Regulations also limit when these fees can be assessed. The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 requires cardholders to opt in before issuers can charge an over-limit fee. Without opting in, transactions exceeding the limit are usually declined. Even for those who opt in, issuers cannot charge multiple fees for the same overage unless the balance remains over the limit for consecutive billing cycles.
Temporary authorizations from hotels, rental car companies, and gas stations can also trigger fees. These businesses often place holds on cards that exceed the final purchase amount. If such a hold pushes the balance beyond the limit, an over-limit fee may apply even if the final charge is lower. Monitoring available credit can help avoid these unexpected fees.
Fee Calculation Methods
The amount charged for exceeding a credit limit varies by issuer but follows regulatory guidelines. Most issuers impose a flat fee, often capped by law. Under the CARD Act, the fee cannot exceed the amount the cardholder went over the limit by. For example, if a cardholder exceeds their limit by $15, the fee cannot be more than $15, even if the issuer’s standard fee is higher. If the overage is larger, the maximum fee typically ranges from $25 to $35, depending on the issuer’s policies.
Some issuers use a tiered fee structure, with the first over-limit instance incurring a lower charge and repeated overages within a set period resulting in higher fees. For example, an issuer may charge $25 for the first occurrence within six months but increase it to $35 if it happens again during that time. This approach discourages repeated overages while allowing flexibility for occasional mistakes.
Cardholder Authorization Requirements
Before approving an over-limit transaction, issuers assess factors such as repayment history, account age, and recent spending patterns. If the risk is acceptable, the transaction may be approved, but this is not automatic. Some issuers require additional verification, such as a temporary hold or manual review.
Digital banking tools help cardholders manage their credit limits. Many issuers send alerts via mobile apps or text messages when a transaction nears or exceeds the limit. Some also allow cardholders to pre-authorize over-limit transactions through account settings, giving them control over whether such charges are permitted.
Variation Among Issuers
Credit card issuers handle over-limit policies differently based on their risk tolerance, target customer base, and competitive strategy. Premium credit cards for high-net-worth individuals may offer flexible credit lines that adjust based on financial profiles. In contrast, issuers catering to subprime borrowers often enforce stricter limits, frequently declining transactions that exceed the credit line rather than approving them with a fee.
The type of card also plays a role. Charge cards, such as those from American Express, do not have preset spending limits but require full repayment each billing cycle. While they do not assess traditional over-limit fees, excessive spending may lead to account restrictions or requests for additional financial disclosures. Secured credit cards, designed for individuals building or rebuilding credit, typically have strict limits equal to the security deposit and rarely allow transactions beyond that amount.