What Is a Credit Card Over-Limit Fee?

Definition and Example of a Credit Card Over-Limit Fee

A credit limit is the maximum amount of credit the credit card issuer has made available to you. In most cases, if you try to make a charge that would push your balance over that limit, your credit card will be declined, and the transaction won't be processed.

If your credit card issuer does not stop you from going over your credit limit, they may charge an over-limit fee. This fee is the penalty for going above the maximum balance allowed on your card.

Whether or not your provider can charge an over-limit fee depends on the terms of your credit card agreement.

Alternate names: Overlimit fee, over-the-limit-fee, credit limit fee, over-limit penalty

Over-limit penalties can be charged regardless of whether purchases, other fees, or finance charges have pushed you over the limit. The credit limit fee typically only applies to credit cards that have a credit limit. Credit cards with no preset spending limit don't have an over-the-limit fee.

How Do Credit Card Over-Limit Fees Work?

Federal law prohibits credit card issuers from charging an over-limit fee unless you've chosen to have over-the-limit transactions processed. That means you must give your permission before you can be charged the fee. 

If you do not opt to have over-limit transactions processed, any purchase that would exceed your credit limit will be declined. In these cases, you avoid any fees or penalties for exceeding your maximum balance.

If you've opted to have over-limit transactions processed, your spending can exceed your credit limit. Once that happens, you can be charged a penalty according to your credit agreement.

Your credit card company can charge you an over-limit fee only once per billing cycle. If your balance remains over the limit, you can only be charged an over-the-limit fee for two consecutive billing cycles.

However, your credit card issuer can charge another over-the-limit fee if:

• You pay your balance down, and it goes over the limit again.
• You get a credit limit increase and exceed the new credit limit.

Notable Happenings

In the early 2000s, predatory over-limit fees were a problem for consumers.

Once a credit card balance was over the limit, many credit card issuers would charge a new fee each month the balance was not brought under the limit. If the cardholder paid the minimum amount necessary to bring the balance to just below the credit limit, finance charges would push the balance over the limit again and another fee would be charged.

This cycle would repeat itself month after month, making it difficult for cardholders to bring their balances down and stop the fees.

When the Credit CARD Act was passed in 2009, one of the changes it made was to end abusive over-limit fees. Credit card issuers could only charge over-limit fees in certain circumstances, and the number of fees that could be charged in consecutive billing cycles was capped.

In 2013, the Consumer Financial Protection Bureau estimated that consumers saved $2.5 billion in over-limit fees between the time the CARD Act became effective in February 2010 and the final quarter of 2012.

How Much Is a Credit Card Over-Limit Fee?

After the CARD Act was passed, many credit card issuers removed the fee altogether. This means you won't receive a penalty fee for going over your credit limit, whether you've opted-in or not.

The fee varies by credit card for those that do still charge it. The CARD Act suggests a maximum of $25 over-limit fee for the first incident and a $35 fee for the second instance within six months. The credit card issuer is not allowed to charge an over-limit fee higher than the amount by which you exceeded your credit limit.

Check your credit card agreement or the back of your credit card billing statement, or call your credit card issuer to find out the over-limit fee for your credit card.

While your goal should be to never exceed your credit limit, aim to choose a credit card that doesn't charge an over-limit fee if you accidentally go over your credit limit.

Alternatives to Credit Card Over-Limit Fees

Even if a credit card issuer doesn't charge an over-limit fee, there may be other penalties for exceeding your credit limit.

• The card issuer may raise your rate to the highest penalty rate.
• You may forfeit any rewards you've earned.

Your credit card agreement will define the penalties of going over your credit limit.

Whether your credit card provider charges an over-limit fee or issues another type of penalty, going over the maximum limit on your credit card can be costly. It can also cause your credit score to go down.

The best way to avoid over-limit fees or other penalties is to monitor your spending, not exceed your credit limit, and pay off the balance on your credit card every month.

If you believe you were charged an over-limit fee in error, you can dispute the charge with your credit card company. If they refuse to remove it, or you believe they are not following the law regarding over-limit fees, you can notify the Consumer Financial Protection Bureau.