The Downside of Opting-Out
Any transaction that would put you over your credit limit would be rejected. You would have to face the embarrassment of having your credit card declined. That’s if that kind of thing embarrasses you. Of course, you’re only hurting yourself in the long run if you’re using credit to prove something to others. If you don’t have another way to pay for your purchase, you’d have to go without it until you can afford it.
Be careful. Opting-in doesn’t guarantee that all your over-the-limit transactions will go through. Your credit card issuer still has the ultimate decision on whether to process transactions that are over your credit limit. Some credit card issuers will only approve a transaction would put you a certain percentage over your credit limit.
For example, if your credit card company only allows transactions 10% over the limit, anything that would put you above $1,100 on your $1,000 credit limit would be declined.
The Benefit of Not Opting-In
You’ll save money and avoid an interest rate increase. You’ll never go over your credit limit and you’ll never have to pay an over-the-limit fee. In addition, you can avoid the penalty rate increase that often comes with exceeding your credit limit.
If you don’t want to pay over-the-limit fees, you don’t have to do anything. You’re automatically opted-out of over-the-limit transactions. If you decide to opt-in, contact your credit card issuer.
The Law on Over-the-Limit Fees
Federal law limits over-the-limit fees to one per billing cycle for only two consecutive billing cycles. However, if you reduce your balance and then exceed your credit limit again (or exceed a credit limit increase), you can be charged another fee.
Credit limit fees are capped at $25 for the first offense and $35 for the second offense, but can’t exceed the amount of the transaction that put you over your limit. For example, if you only exceeded your credit limit by $5, your credit limit fee can only be $5.