When the Credit CARD Act of 2009 required credit card issuers to allow cardholders to opt-in to credit limit charges, many of the major credit card issuers got rid of credit limit charges altogether. Still, many credit cards continue to assess a fee for cardholders who exceed their credit limits.
First, your creditor will likely charge an over-the-limit fee of as much as $35. You can be charged one over-the-limit fee per month for up to three billing cycles if you go over your credit limit. Or, your card issuer can charge additional over-the-limit fees if you pay your balance down, then exceed your credit limit again or if you get a credit limit increase and exceed the new credit limit.
Second, your interest rate can increase to the card's default rate, which in some cases is as high as 30%. This increased interest rate makes it more costly to carry a credit card balance beyond the grace period.
Lastly, your credit score takes a hit. Since 30% of your credit score compares your debt level to your credit limits, having an over-the-limit balance will cost credit score points. (See 15 Credit Score Killers.)
Here are some ways to avoid the costs of going over your credit limit.
- Don't opt-in. Your credit card issuer can't charge an over-the-limit fee unless you opt-in. If you don't tell your card issuer that you want over-the-limit transactions processed, then those transactions will be declined and you won't be charged an over-the-limit fee.
- Know your credit limit. Not knowing your credit limit is a disaster waiting to happen. It's much easier to go over your limit if you don't know what it is. To find out your credit limit, look at your billing statement. Since creditors sometimes raise and lower credit limits, it's a good idea to monitor your limit regularly.
- Enroll in balance alerts. Some credit cards send alerts to cardholders when their balance is within a certain percentage or dollar amount of their credit limit. If your credit card offers this type of alert, sign up for it.
- Keep your balance low. A low balance gives you room to make purchases without going over your limit. Not only that, it's better for your credit score. A good credit card balance is 30% of your credit limit or lower. That's a balance of $300 or less on a card with a $1,000 limit.
- If you're not sure, check. Anytime you're unaware of your balance and credit limit, check before making a purchase. Many credit cards have an automated line available 24/7 for checking this type of information. Use the customer service number on the back of the credit card. If you have a cell phone, you can even call from the store before making your purchase.