Can Credit Card Companies Charge You Late Fees & Over-Limit Fees if You Close the Account?

Paying ongoing over-the-limit fees or late fees can cause your credit card balance to escalate quickly, but closing your account won't fix the problem. In fact, you can't close a credit card account with an outstanding balance; you can only close it to new purchases. This means the card issuer can continue to charge you interest, late fees and over-the-limit fees on the current account balance. If you close the account to new purchases, the credit card company is less likely to help you work out the situation, as it knows you will not make any more purchases.

Your card company typically charges you over-the-limit fees each month your balance is higher than your credit limit. So, if you have a credit limit of $500 and your outstanding balance is $525, it charges you an additional fee, usually more than $30. Sometimes this occurs because you make a purchase that causes your balance to go above the credit limit. Other times it is due to late fees or interest. The card issuer can't charge over-the-limit fees unless you agree beforehand to permit them. Then you'll receive a disclosure and the amount of the fee. You can change this election at any time. The over-the-limit fee can't exceed the amount that you are over the limit.

The worst thing that can happen with your card is you fall into a cycle where the over-the-limit fee is assessed each month. This can happen even if you stop using your card and just pay the minimum payment. To make sure you bring your outstanding balance below the credit limit, make the minimum payment and add the interest charge for the month. You can figure this out yourself or call your card issuer and ask them what you need to pay in addition to the minimum payment to get rid of an ongoing over-the-limit fee.

If your credit limit is $500 and you exceed the limit by $50, you now owe $550 plus the monthly interest charge of $8. Your total balance is $558, and your minimum payment is $60, which brings you under the limit until the new interest charge is assessed. Your credit issuer again charges you $8 for interest and brings your balance to $506, which causes a new over-the-limit fee to kick in. Instead of paying just the minimum payment, add an extra $8 to your payment to cover the new interest and bring your balance below the credit limit. You’ll avoid future over-the-limit fees.

To avoid late fees, pay at least the minimum payment by the due date. It’s always best to pay a few days before the due date, and many credit card issuers allow you to set up automatic debits from your bank account. If possible, do it three to five days before the actual due date. If you're mailing a check, send it two weeks before to the due date. This way you give your payment plenty of time to get there. It's also a good idea to call or check your online account a few days before the due date to confirm that the payment has posted to the account.