What Is an Overlimit Fee on a Credit Card?
Navigate credit card overlimit fees. Understand how they occur, their financial impact, and simple ways to avoid or resolve them.
Credit cards offer convenience for everyday purchases and managing expenses. They come with various associated fees, and understanding these charges is important for financial management. One particular fee that can arise is the overlimit fee.
Understanding Overlimit Fees
An overlimit fee is a charge imposed by a credit card issuer when a cardholder exceeds their designated credit limit. The credit limit represents the maximum amount of credit extended by the issuer that can be borrowed on the card. When a transaction causes the outstanding balance to surpass this predetermined limit, an overlimit fee may be triggered.
The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 mandates that credit card issuers cannot charge an overlimit fee unless the cardholder has explicitly opted in to allow transactions that exceed their credit limit. If a cardholder does not opt in, any transaction that would push the account balance over the credit limit should be declined, preventing the fee. Opting in makes the account eligible for these fees.
How Overlimit Fees Are Applied
If a cardholder has opted in to allow overlimit transactions, the fee applies when the balance surpasses the credit limit. For the first instance of exceeding the limit, the fee can be up to $25. If a second overlimit incident occurs within six months, the fee can increase to $35.
The overlimit fee itself cannot exceed the amount by which the credit limit was surpassed. Credit card issuers charge overlimit fees once per billing cycle, even if the account goes over the limit multiple times. The fee is added to the outstanding balance, which can lead to further fees in subsequent cycles if the balance is not reduced.
Preventing Overlimit Fees
Avoiding overlimit fees requires proactive management of credit card accounts and spending habits. Regularly monitoring the account balance through online banking portals or mobile applications helps ensure it remains well below the credit limit.
Setting up balance alerts or transaction notifications with the credit card issuer can provide timely warnings if the account approaches its limit. Understanding the difference between available credit and total credit limit, especially considering pending transactions, is important. Avoiding large purchases when the account balance is near the credit limit can prevent accidentally exceeding it.
Responding to an Overlimit Fee
If an overlimit fee appears on a credit card statement, first verify the charge against recent account activity. Also, confirm your opt-in status with the credit card issuer to understand if you agreed to allow overlimit transactions.
Contacting the credit card company to discuss the fee is often beneficial. Issuers may waive the fee, particularly for a first offense or if you have a history of responsible account management. Promptly pay down the balance to bring it below the credit limit to prevent additional fees.