You might be surprised to learn that going over your limit on a credit card actually has little to no direct impact on your rating. However, this doesn't mean that routinely exceeding the limit or even coming close to it is a good idea. Even if it doesn't harm your credit score directly, going over your credit limit can cause side effects such as card fees, difficulty getting new loans or higher credit utilization, which can impact your credit score.
While the simple act of going over your credit limit may not directly impact your score, potential effects such as higher credit utilization can lower your score and make you look riskier to lenders.
All credit cards have usage limits. Typically, young borrowers with limited histories have relatively lower limits. If you have a card with a $3,000 limit, you exceed that amount the moment you complete a transaction that pushes your balance past it. In some cases, you face no consequences if you pay the balance down before your next statement. Often, though, you pay over-limit fees to the card provider. You may also see an increased interest rate on your card as outlined in your cardholder agreement and account terms.
Increased Debt-to-Limit Ratio
Though your over-limit experience and fees aren't directly reported to credit bureaus, high credit utilization ratios are bad news in general. This ratio is the amount of debt you're using compared to what you can use. In essence, you have a ratio of more than 100 percent if you are over a card's limit. Borrowers with good credit usually have much lower ratios. Excellent borrowers commonly use 10 percent or less of these allowed limits. According to the MyFICO website, 30 percent of your credit score is based on a comparison of your debts to limits.
Credit Report Implications
Even though your rating isn't directly impacted by going over the limit, your credit report typically shows potential lenders both your balances and limits on loan accounts. Thus, if you apply for a new loan or card, the lender can review the entire report. Even if you have a decent score, a lender may refuse a new loan, or offer a high rate, if you have one or more card accounts with balances near or above available limits.
Responsible Use and Limit Increases
Ideally, you can avoid the risks of exceeding your card limits through responsible use. If you look at cards as an emergency device rather than a tool for regular spending, you have a better chance of staying under the limit. You can also request a credit limit increase on cards with low to moderate limits. You should do this after you have demonstrated responsible use. Card providers likely won't grant you such a request if you are at or over the limit, as they fear you will only run into the same problem if allowed more debt.
- Credit Karma: Credit Card Utilization and Your Credit Scores
- Credit.com: What Happens If You Go Over Your Credit Card Limit?
- Experian: Going Over the Limit on Your Credit Card
- myFICO: How FICO Scores Look at Credit Card Limits
- Experian. "What Is a Credit Limit?" Accessed Nov. 6, 2019.
- myFICO. "Amounts Owed," Accessed Nov. 6, 2019.
- Experian. "Debt-to-Income Ratio," Accessed Nov. 6, 2019.
- Experian. "What Affects Your Credit Scores?" Accessed Nov. 6, 2019.
- Experian. "What Is a Credit Card Cosigner and Should You Use One?" Accessed Nov. 6, 2019.
- Citi. "6 Things You Need to Know About Secured Credit Cards," Accessed Nov. 6, 2019.
- myFICO. "Can I Build a Good FICO Score If a Charge Card Is My Only Credit Account?" Accessed Nov. 6, 2019.
- Capital One. "Credit Line Increase FAQ," Accessed Nov. 6, 2019.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.