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If I Go Over My Credit Limit What Happens?

Your credit limit is the maximum amount of money you have available to spend using your credit card. But what if your credit card balance is high and a transaction exceeds your limit? Learn if it’s possible to go over your credit limit and how credit card balances affect your credit. 

Can I Spend More Than My Credit Card Limit?

It is entirely possible for a borrower to spend more than their credit card limit. However, exceeding credit limits requires you to give your credit card issuer authorization. 

The Credit CARD Act of 2009 prevents any credit card company from charging over-limit fees unless the borrower opts in for over-limit purchases. When you obtain a credit card, you can choose to opt-in for over-limit protection. Over-limit protection allows you to spend more than your credit limit for a small over-limit fee. Talk to your credit card issuer if you’re interested in signing up for over-limit protection. But keep in mind that many credit card issuers do not offer over-limit protection. 

Creditors are only allowed to charge one over-limit fee per billing cycle. The average cost of an over-limit fee is between $25 and $35. The credit card issuer will automatically decline any over-limit purchase if you do not authorize over-limit protection. 

Can My Credit Limit Get Cut?

Credit card companies have the ability to increase and decrease credit limits. You can end up with a lower credit limit if your credit card balance constantly remains high or you have an inactive account. 

You should receive an “adverse action notice” if your creditor makes unfavorable changes to your credit card account. If your credit limit decreases, your credit card issuer cannot charge an over-limit fee for 45 days. The consumer must get 45 days after receiving a notice. Still, they can only get charged a fee if they opt-in for over-the-limit transactions.

If unsatisfied with your low credit limit, you can request a credit limit increase or switch to a credit access line. What’s the difference between a credit access line and a credit limit? A credit access line allows you to go over your credit limit without paying over-limit fees. However, many credit card companies do not offer credit access lines. Those that do tend to have higher minimum payments and interest rates. 

Will a Higher Credit Limit Improve My Credit Score?

Your credit score may be low if you have a lot of credit card debt. Too much existing debt can negatively affect your credit because credit utilization accounts for 30 percent of your score. A credit utilization ratio is a calculation of your credit card spending. Your credit utilization ratio should not exceed 30 percent if you want to obtain and maintain a good credit score.  

To calculate your credit utilization ratio, follow these simple steps:

  • Add up all of your total credit limits. 
  • Add up all of your total credit card debt.
  • Divide your total debt by your total credit limit.
  • Multiply the total by 100 to get a percentage.

The answer you get will be your utilization ratio! Maxing out credit cards can result in decreased credit lines and low credit scores. In addition, you won’t have access to enough quick cash during an unexpected financial emergency. But your credit score will go up if you pay off credit cards in full! Consider asking your credit issuer for a credit limit increase if you currently have a lot of debt to repay. 

Can I Get a Credit Limit Increase?

A credit limit increase can improve your credit score and help you get more spending power! But how can a borrower get a limit increase? Many credit card issuers automatically increase your initial limit after a few months. Still, you can take the initiative and request an increase. Whether you can get a higher spending limit depends on your financial activity and income. 

Reasons You May Qualify for a Limit Increase

You Got a Raise or Second Job 

You may get a limit increase if you recently received a raise at work or increased your income by working a second job. Earning more money means you have the ability to improve your spending habits. Your creditor may feel comfortable giving you a higher credit limit if you have the financial ability to pay off transactions. 

Your Credit Score Improved

Suppose your credit score has improved since opening an online credit card account. In that case, you could successfully request a higher spending budget. Your credit score depends on your financial activity. Scores increase by paying on time, limiting inquiries, managing different accounts, and more. If you have a good credit score, your card issuer may be willing to risk giving you more money. 

You Have No Missed Payments 

Paying all of your monthly bills on time can help you build credit and get a higher spending limit. If you rent, keep in mind that some landlords report payments to at least one of the major credit bureaus. However, the good news is that utility bills may not affect credit scores that much. You can reap the rewards when you learn how to keep track of billing dates! 

Reasons You May Not Qualify for a Limit Increase

You Max Out Your Card Limits 

If your percentage of available credit is low, you may not get approval for a credit limit increase. Lenders consider borrowers who use most of their available credit as financially irresponsible. Ideally, your balance should not exceed 30 percent of your available balance. If you need more money, try asking your credit issuer for a credit increase. If your credit report shows that you cannot manage your money wisely, you may not get more money to spend. 

You Pay Bills Late 

Missing one or two payments may not prevent you from getting a credit limit increase. Do you constantly miss payments on credit cards and poor credit installment loans? In that case, upgrading to a high-limit credit card will be almost impossible. Credit card companies take a financial risk by offering money to borrowers. Failing to pay your debts on time can have negative consequences on your credit score and economic opportunities. 

You Make Too Many Inquiries 

When a borrower makes too many inquiries, it can affect your ability to get a credit limit increase. The more inquiries you make, the higher your level of risk as a borrower. Lenders view excessive inquiries as a sign that you cannot manage your personal finances. If your credit score shows you are a credit risk, you may have difficulty qualifying for new credit lines or loans.

Your Credit Score Decreased

Suppose your credit score has decreased since you got your initial credit line. In that case, your lender may not qualify you for a credit limit increase. Credit scores fall for a variety of reasons, such as missing or late payments, increased debt, opening or closing accounts, etc. A decreased score may be a red flag to your lender that indicates your financial state is unstable. 

Can I Improve My Credit With a Balance Transfer?

If you have trouble paying down your credit card debt due to high-interest rates, you can try applying for a balance transfer credit card. Balance transfers allow borrowers to move their credit card debt from one credit card to another. Many credit card companies offer zero interest introductory promotions for new applicants, which you can use to pay off debt without excess interest fees. 

However, qualifying for a balance transfer credit card may be difficult if you have maxed out your current credit cards. Carrying too much debt can deter credit card issuers from working with you, even if your credit score is better than average. 

If you do manage to qualify for a balance transfer card, calculate how much time it will take you to pay off your debt before the introductory promotion ends. Too often, the interest rate skyrockets after the promotional period, which leaves borrowers repeating the vicious cycle of struggling to repay high-interest debt. A balance transfer card is only a good idea when you can pay off your credit card debt in full before the end of the promotional period.

How To Avoid Going Over Your Credit Limit

The best way to avoid going over your credit limit and negatively affecting your credit score is to start budgeting. There are numerous effective budget methods, such as the 50/30/20 rule. 

The 50/30/20 budget method helps consumers categorize their spending, so only a specific amount of money is spent on needs, wants, and savings. A consumer should spend 50 percent of their monthly income on necessary bills, 30 percent on unnecessary bills, and 20 percent on savings. The great benefit of this budgeting rule is that it can be adjusted to fit any lifestyle. 

Another great tip for cutting back on unnecessary spending is to switch from paid to free subscriptions. Many of us have paid monthly subscriptions to video and audio streaming services. Still, there are plenty of free options to save money each month. Once you successfully pay down your credit card debt, you can splurge on paid subscriptions!

There are different ways to manage your money. The best method for you depends on your finances and lifestyle. 

References: 
Can my credit card issuer reduce my credit limit?
What Happens If You Go Over Your Credit Card Limit?