When you’re new to handling credit cards, it’s easy to make the mistake of charging purchases up to your credit limit. After all, it’s reasonable to think that, if you were given the credit line, you could use it if you so chose with no negative consequences. That’s not the case, though. Maxing out your card hurts you. It’s even worse if you exceed your credit limit.
If you make purchases that use up your entire line of credit, then attempt to buy something else, your credit card company may or may not approve the charge. That means you’ll have an audience of fellow shoppers or diners if the merchant has to tell you the card has been declined.
Whether a credit card company accepts an over-the-limit transaction may depend on whether you have opted into an arrangement that lets you charge over your credit limit in exchange for being assessed a fee. In 2009, Congress passed the Credit Card Accountability, Responsibility, and Disclosure Act to increase consumer protections. Part of the CARD Act prevents banks from charging overlimit fees unless you’ve given permission for overlimit transaction approvals. You’ll be charged up to $25 the first time you go over the limit, the Consumer Financial Protection Bureau says, and up to $35 after that. The fee can’t exceed the amount you charged over the limit.
Your credit score will go down if you exceed your credit limit. It will go down even if you only approach your credit limit. The more of your available credit you use up, the lower your score falls. To lenders, using credit this way says you might be about to run into trouble making payments. To avoid hurting your credit score, don't use more than 25 percent of your limit.
Interest Rate Adjustment
The lower your credit score, the higher the interest rate that banks will charge on loans, including credit card charges. Exceeding your credit limit allows the credit card issuer to hit you with a penalty rate. As an example, the Federal Reserve put together a credit card offer with three introductory rates to suit different credit score ranges. The normal annual percentage rate was 14.99 percent while the penalty APR was nearly double that -- 28.99 percent.
- Capital One: Online Banking FAQ - Credit Card Accounts
- Consumer Financial Protection Bureau: CARD Act Factsheet
- Consumer Financial Protection Bureau: Ask CFPB
- myFICO: Understanding Your FICO Score
- Hokie Wellness: Deciphering Your FICO Score
- Federal Reserve: Credit Card Offers
- Consumer Financial Protection Bureau. "Comment for 1026.56 - Requirements for Over-the-Limit Transactions: 56 (g) Continuing Right To Opt In or Revoke Opt-In." Accessed Feb. 11, 2020.
- Consumer Financial Protection Bureau. "Comment for 1026.56 - Requirements for Over-the-Limit Transactions: (a) Definition and (b) Opt-in Requirement." Accessed Feb. 11, 2020.
- Consumer Financial Protection Bureau. "I Went Over My Credit Limit and I Was Charged an Overlimit Fee. What Can I Do?" Accessed Feb. 11, 2020.
- Office of the Comptroller of the Currency. "Can the Bank Charge Me an Over the Limit Fee?" Accessed Feb. 11, 2020.
- Federal Trade Commission. "Credit Card Accountability Responsibility and Disclosure Act of 2009," Page 7. Accessed Feb. 11, 2020.
- National Credit Union Administration. "Understand Your Credit Card Statement - 5. Notice of Changes to Your Interest Rates." Accessed Feb. 11, 2020.
- Experian. "Going Over the Limit On Your Credit Card." Accessed Feb. 11, 2020.
- Experian. "What Affects Your Credit Scores? - What Can Hurt Your Credit Scores." Accessed Feb. 11, 2020.
Sophie Johnson is a freelance writer and editor of both print and film media. A freelancer for more than 20 years, Johnson has had the opportunity to cover topics ranging from construction to music to celebrity interviews.