- What Happens If You Go Over Your Credit Card Limit?
- What happens if I go over my credit limit?
- Should I go over my credit limit?
- Does going over my limit affect my credit score?
- How does overspending affect my interest rates?
- Tips to avoid going over your credit limit
- Bottom line
- What happens when you go over your credit limit?
- What happens when you exceed your credit limit?
- What are the financial consequences of going over your card limit?
- What are the alternatives to going over your credit limit?
- How to avoid exceeding your credit limit
- You will have to opt in
- What’s the fee for going over your credit limit?
- What if a recurring or interest charge puts you over your limit?
- Going over your credit limit can hurt your credit score
- Bottom line
- What Happens If You Go Over Your Credit Limit (And Why You Shouldn’t Do It)
- Why It’s Harder Now to Go Over Your Credit Limit
- Should You Go Over Your Credit Limit?
- How to Avoid Going Over Your Credit Limit
- Know Your Credit Limit
- Set Alerts, Make a Budget, and Track Your Spending
- Ask For a Credit Limit Increase
- Apply For a Balance Transfer Credit Card
- What Happens If You Go Over Your Credit Limit?
- What Happens If You Go Over Your Credit Card Limit?
- How To Avoid Going Over the Credit Limit
- This is what happens when you go over your credit limit
- Going up to your credit limit equals being overutilized
- Going up to your credit limit equals bad news
- Keeping your credit in line
What Happens If You Go Over Your Credit Card Limit?
A credit limit is the total amount of money that can be charged to a credit card, whether in the form of purchases, interest charges or fees.
Every credit card comes with its own credit limit, and lenders generally determine these limits credit scores and other indicators of creditworthiness.
Your credit limit might be $500, $1,000, $5,000 or more—but no matter what kind of credit limit you have, spending beyond your credit limit is generally a bad idea.
What happens if you go over your credit limit? It depends on whether you signed up for a traditional credit card or a charge card. Some charge cards don’t come with credit limits, as long as you are able to pay off the balance in full every month. Other charge cards offer spending limits similar to credit card limits, so pay attention to the fine print.
What happens if you go over your credit limit also depends on whether or not you signed up for over-limit protection, a feature that allows you to spend over your credit limit. Over-limit protection programs give you the freedom to make occasional over-limit purchases, but they also come with significant consequences for over-limit spending, including fees and higher interest rates.
Since many of the best credit cards no longer offer over-limit protection, a declined transaction is the most ly consequence of spending over your credit limit.
However, it’s still a good idea to understand exactly what happens if you go over your credit limit, because you’ll start experiencing the negative effects of a high credit card balance long before you hit your credit limit or max out your cards.
What happens if I go over my credit limit?
Going over your credit limit is ly to come with consequences. If you didn’t enable over-limit protection on your credit card account, your transaction will probably be declined.
If you opted into over-limit protection, your charge might go through—but you could get hit with fees, higher interest rates or lower credit limits. You might even see your credit score drop due to the increased balance on your card.
If you make too many over-limit charges, your credit card issuer could close your credit account.
Here are the most common consequences associated with spending over your credit limit:
The Credit CARD Act of 2009 limited the amount and types of fees that could be charged for an over-limit transaction.
For starters, credit card issuers are only allowed to charge over-limit fees to cardholders who have opted into over-limit protection plans.
If you did not sign up for over-limit protection, you won’t be charged any over-limit fees—but you also won’t be able to spend over your credit card limit.
The Credit CARD Act also limited credit issuers to one over-limit fee per billing cycle and restricted the amount that issuers could charge in fees.
According to the Consumer Financial Protection Bureau, over-limit fee rates currently stand at no more than $25 for the first over-limit charge and up to $35 for any additional over-limit charges within a six-month period.
However, card issuers are not allowed to charge an over-limit fee that is greater than the amount charged over the limit. If you exceed your credit limit by $10, for example, your over-limit fee can be no higher than $10.
Should I go over my credit limit?
It is almost never a good idea to go over your credit limit. The consequences of going over your credit limit, even if you opted into over-limit protection, tend to outweigh the benefits of making an additional purchase on your credit card.
Since spending over your credit limit can increase your interest rates and lower your credit score, try to avoid going over your credit limit except in cases of absolute emergency. Instead, look for alternative ways of making the payment.
If you have enough money in your checking account to cover the cost, for example, try putting it on a debit card.
Yes, credit cards are more secure than debit cards for most types of purchases—but if the choice is between using debit and going over your credit limit, pull out your debit card.
If you’d to change your credit limit, you can request a credit limit increase from your card issuer.
In most cases, you can request a higher credit limit by logging into your credit card account and making the request online—no need to call customer service or wait on hold.
Your credit limit increase request is more ly to be approved if you have good credit, so check your credit score before contacting your lender.
When you request a credit limit increase, your lender will perform a hard credit inquiry on your credit report. This might reduce your credit score by a few points, but if your credit limit request is approved, your new credit should lower your total credit utilization and give your credit score a boost.
Does going over my limit affect my credit score?
Going over your credit limit has a good chance of lowering your credit score. Why? Because 30 percent of your credit score is your credit utilization ratio—that is, the ratio of your available credit to your existing debt.
If you go over your credit limit, your debt is exceeding your available credit on that account.
Depending on how many cards you have, this doesn’t necessarily mean that you’ll be maxing out all of your credit, but if it takes you over 30 percent utilization across all your accounts, it’s still ly to hurt your credit score.
How does overspending affect my interest rates?
Spending over your credit limit can affect your interest rates in a few different ways. If you exceed your credit limit on a specific credit card, your card issuer could increase the interest rate you pay on that card.
If you have multiple credit cards under your name, your other credit card issuers might notice the change in your credit score and raise their rates as well.
If you decide to apply for additional credit cards in the future, lenders could review your credit reports, see that you have a history of spending over your limit and set your interest rates accordingly.
Tips to avoid going over your credit limit
If you want to avoid going over your credit limit, it’s important to know how much credit is currently available to you.
Remember, it might not be a credit card purchase that puts you over your credit limit—if you’re carrying a very high balance on your credit card, your monthly interest charges could be enough to take you over the limit.
An over-limit interest charge won’t come with the same consequences as an over-limit purchase, but it’s still something you should try to avoid.
Here are four tips to help you manage your credit and avoid going over your credit limit:
Review your credit card balances regularly. When you log into your online credit card account or app, you should see both your current balance and your available credit. Learn how much credit you have left to spend and plan accordingly to keep spending below that amount.
Pay off your balances as quickly as possible. Paying off your credit card balances gives you more credit to spend on future purchases. Plus, reducing or eliminating your revolving balances lowers your credit utilization ratio and can increase your credit score.
Request a credit limit increase. Asking for a credit limit increase is one way to add a little more breathing room to your credit. Be careful not to max out your new credit limit as soon as you get it.
Apply for a balance transfer credit card. If you are having trouble paying off the balances on your current credit cards, a balance transfer credit card can help. The best balance transfer credit cards offer introductory zero percent APRs that typically last 15 to 21 months, giving you time to pay off your debt without paying interest on your balance.
Going over your credit limit is rarely a good choice. In most cases, your transaction will simply be declined—but if you’re close enough to your credit limit that you have to worry about your next purchase or interest charge pushing you over the top, it’s time to think about paying off your credit card debt.
If you’re worried about going over your credit limit, check your credit accounts regularly. By paying attention to your credit card balances and avoiding purchases that exceed your available credit, you can avoid the consequences of spending over your credit card limit.
What happens when you go over your credit limit?
A credit card is convenient for paying bills, covering everyday expenses, or booking travel but it's not a free pass to spend. Your credit limit determines how much purchasing power you have at any given time.
While some credit card issuers allow you to go over your spending limit, there can be negative consequences for doing so. Those can include paying over-limit fees and potentially dinging your credit score.
What happens when you exceed your credit limit?
When you exceed your credit limit, you're making purchases beyond what your credit card issuer normally allows. Whether the transaction goes through depends on your credit card company's over limit policy.
“You may only go over your credit card limit if you sign up for over-limit protection,” said Brian Meiggs, founder of the personal finance site My Millennial Guide. “Otherwise, your transaction will be declined.”
That's because the 2009 CARD Act requires you to opt-in to paying over-the-limit fees before you can exceed your credit limit. If you don't opt-in, you won't pay an over-limit fee. But unless your card issuer specifically allows you to go over your spending limit, the transaction may be declined.
Individuals with an excellent credit history and a good credit score will be able to apply (and get approved) for almost any card. If you feel you fit into this category, use Credible's free financial tools to browse different types of credit cards to see which best fits your financial needs.
HERE'S WHY YOU SHOULD HAVE MORE THAN ONE CREDIT CARD
What are the financial consequences of going over your card limit?
Going over your card's credit limit can affect you financially in different ways.
“Your interest rates could increase, it could lead to a lower credit score and a lower credit limit, and you can be charged an over-limit fee,” Meiggs said. “Worst-case scenario, your credit issuer could close your account if you habitually exceed your credit limit.”
While the CARD Act effectively eliminated over-the-limit fees, you could still pay them if you've opted in. In terms of credit score impacts, going over your limit could negatively affect your credit utilization ratio.
This represents how much of your total credit limit you're using at any given time.
Unless your credit limit increases alongside your balances, going over your card's limit could hurt your utilization ratio and cost you credit score points.
Carrying a larger balance on your cards could also mean paying more interest if you're stuck with a higher APR. Executing a balance transfer at zero percent can help reduce interest costs. But that isn't free since it usually means paying balance transfer fees.
SECURED CREDIT CARDS CAN HELP BUILD YOUR CREDIT — HERE'S HOW
What are the alternatives to going over your credit limit?
Going over your spending limit isn't ideal for a variety of reasons. The good news is, there are some other options you can pursue.
HOW TO INCREASE YOUR CREDIT SCORE FAST
How to avoid exceeding your credit limit
If you'd rather not exceed the amount of credit you have on your card, there are a few things you can do to avoid it.
Budgeting and tracking spending is a good place to start, said Meiggs. A budget is one of the most important personal finance tools you can use to manage your finances and avoid overspending.
Next, you can set up transaction alerts for your credit cards to notify you when you're getting close to your credit limit. This can help you curb making purchases with the card until you have a chance to pay down some of your existing balance.
It's also helpful to make note of your credit limit for each card you own. You can request credit limit increases strategically to free up more credit while potentially improving your credit utilization ratio.
Opting over-limit fees and protections can make exceeding your credit limit a moot point. But if you decide not to do that, assess your balances and available credit regularly and aim for a credit utilization ratio of 30% or lower, advised Meiggs.
If you plan to apply for new credit cards, including balance transfer cards, do your homework first. Consider visiting Credible to review offers from different credit card companies to find the best match for your needs and spending habits.
WHAT CREDIT CARD SHOULD YOU GET? HOW TO CHOOSE THE BEST ONE FOR YOU
You will have to opt in
The default position is that you cannot go over your credit limit, and a card issuer will have to give you the chance to opt in to go over your credit limit.
You do not opt in merely by applying for a credit card. When you apply for the card, the issuer could provide a notice that allows you to go with the over-the-limit arrangement. The opt-in should be a separate provision not tied to other features of a credit card application.
An issuer could also send you a separate form, with your monthly statement or other communication, to opt in to over-the-limit transactions. You could also call the issuer or email it to affirm your consent.
Further, the card issuer will have to confirm that you have opted into this feature before activating it on your account. The law prohibits a card issuer from tying a higher credit limit offer to your opting into the over-the-limit protection. The issuer also cannot require you to opt in as a condition of approving your application for credit.
What’s the fee for going over your credit limit?
If you go over your credit limit after opting in, the CARD Act set a $25 limit as a reasonable amount for a first violation, and a $35 cap for any subsequent defaults within a six-month time frame.
After adjusting for inflation, those penalty fees are capped at $29 and $40 for 2020. In any event, the fine cannot exceed the amount you went over your limit by. Also, while an issuer can charge you an over-the-limit fee, it can’t impose a recurring periodic fee just for allowing you to opt into this feature.
See related: I requested higher credit limits, and here’s what happened
What if a recurring or interest charge puts you over your limit?
In certain circumstances, a card issuer might have to OK a transaction that pushes you over your credit limit, even if you haven’t expressly opted in.
For instance, you make a $20 purchase and before this is charged to your account a different recurring charge is posted. When the $20 is subsequently charged, it makes you go over your credit limit. In these situations, the issuer cannot charge you a penalty for crossing your credit limit.
Another case in point is if interest charges for a billing cycle push you over the credit limit. The issuer cannot charge you a penalty for that, either.
Additionally, it’s left to the discretion of a card issuer whether to approve an over-the-limit transaction, even if you have opted into the arrangement. An issuer could also refuse to continue to honor your opt-in request in case it sees you as a credit risk at some point.
You have the option to back the over-the-limit arrangement if you choose to do so. In this case, you are still liable for fines on transactions that put you over your credit threshold before you opted out.
The law doesn’t allow an authorized user on a card – who does not share joint responsibility with the cardholder on the account – to opt into the over-the-limit protection or withdraw from the feature.
See related: Why did my issuer offer me a low credit limit despite my high credit score?
Going over your credit limit can hurt your credit score
If you go over your credit limit, that begs the question of how well are you managing your available credit. Opting for this arrangement is not a get-out-of-jail-free card, and there are consequences for going over your credit limit.
For one, the amount of your available credit you use factors into your credit score as a credit utilization input. If you max out your card, that could lower your credit score by more than 120 points, according to FICO. You could also see your interest rates go up if lenders see you as a higher credit risk after your over-the-limit spending is reflected in your credit report.
If your income has risen and you can justify the additional spending, you could ask your issuer for a higher credit limit.
Otherwise, you should aim to be responsible with your spending and not see going over your credit limit as a choice.
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What Happens If You Go Over Your Credit Limit (And Why You Shouldn’t Do It)
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All credit cards share one thing in common: They have a credit limit — the upper threshold of the cumulative expenses you can put on the card.
If a card has a $10,000 limit, then you won’t be able to spend any more than that amount on it. That’s the theory, but in practice you could go beyond the limit — and possibly pay a fee for doing it.
While there’s no universal rule for how far over you can go, experts say you shouldn’t try it. That said, if you make a purchase that goes past your credit limit, a few things can happen.
The transaction could be flat-out denied, you may damage your credit score, you could face a penalty APR (annual percentage rate), or you may have to pay an over-limit fee — if you said yes to that latter option.
“What’s mostly happening in practice if you try to go over your limit is the transaction will just be declined. But that’s not what happens 100% of the time,” says Ted Rossman, an industry analyst at Creditcards.com. “Sometimes, they will actually let the transaction go through. It’s really at the card issuer’s discretion.” (Creditcards.com shares an owner with NextAdvisor.)
Here’s what you need to know about going over your credit limit, what consequences you might face if you do, and how to avoid it.
Why It’s Harder Now to Go Over Your Credit Limit
The Credit CARD Act of 2009 effectively eliminated over-limit fees unless cardholders explicitly authorize them. Card issuers are now required to get an opt-in from customers in order to charge for exceeding their credit limit.
But the issuer cannot charge more than one over-limit fee per billing cycle.
If you don’t opt in, the issuer will typically decline any transactions that go past your limit, and can’t charge you any fees. You can opt in or over-limit protection at any time.
“That had the somewhat unintended consequence of encouraging most card issuers to do away with those fees because they didn’t want to bother with the whole opt-in process,” Rossman says, referring to some card issuers that no longer have opt-in over-limit programs. But it ultimately depends on the terms and conditions associated with your card.
Before the Credit CARD Act, over-limit fees were another way for credit card companies to make money. They would typically authorize transactions over limits and then charge fees, usually between $25 and $35. According to the Consumer Financial Protection Bureau, Americans saved more than $9 billion in over-limit fees between 2011 and 2014.
But there are now other possible consequences for going over your credit card limit. If you’re over your limit or regularly try to go over it, your issuer might decide to reduce your credit limit, increase your monthly minimum payment, or charge a penalty APR.
That’s why you should consider carefully whether you want to opt in.
“There’s all kinds of reasons, medical expenses, divorce, or job loss, you might suddenly be dependent on your credit card. But don’t make it worse than it already is. Don’t opt in to go over your limit,” says Beverly Harzog, a credit card expert and consumer financial analyst for U.S. News and World Report.
Should You Go Over Your Credit Limit?
Experts say it’s not a good idea to go over your credit limit because the cons, even if you have opted in to over-limit protection, typically outweigh the pros.
Not only can it lead to long-term debt and possibly a higher interest rate, but it can also hurt your credit score because your credit is overutilized when you’re over your limit. Credit utilization – the ratio of your credit card balances to your overall limit – is the second-most important factor influencing your credit score.
“You’d be using over 100% of your available credit. That would definitely have a negative effect on your credit score,” Rossman says. “When you sign up, you’re committing to not overdraw, so you would technically also be in default of your cardholder agreement.”
If you spend over your credit limit, keep in mind that every credit card issuer handles it differently. Here’s a quick rundown of potential consequences:
- There’s a good chance the credit card will be declined
- You might pay an over-limit fee (if you opted in)
- The interest rate on that credit card could go up
- The credit limit could go down
- Your credit score may drop significantly
- The credit card account could be closed
If you ever go over your credit limit, it may be time to look at your spending and figure out why it happened in the first place, Harzog says.
“If you’re going over your limit, you’re already in trouble at that point. Use this as a time to reevaluate your budget and maybe change your spending habits,” she says. “Do what you can because that’s not the way credit cards are supposed to be used. You pay a lot in compound interest when you carry a big balance.”
How to Avoid Going Over Your Credit Limit
These tips can keep you accountable for your spending and help you avoid going over your credit limit.
Know Your Credit Limit
Start by checking your online credit card account or app to see the difference between your credit limit and your outstanding balance. Any information on your online account will be more up to date than a copy of your billing statement.
Knowing how much available credit you have ensures you stay within your limit.
“It should never be a surprise when you get online and check your available credit,” Harzog says.
Set Alerts, Make a Budget, and Track Your Spending
Just you can keep a constant eye on your bank account, by setting up balance alerts that let you know you’re about to run available funds, you can do the same for credit card limits. Setting up a credit-limit alert that warns you, on your phone or by email, that you’re about to hit the maximum on your credit card will help avoid any negative consequences.
If you are about to go over a credit card’s limit, just do not use that card and pay with cash or a debit card instead.
“If you’re going to the grocery store, and you have to choose between going over your credit limit or using your debit card, using money you already have might be a better choice in that situation. You want to minimize the damage at that point,” Harzog says.
Another way to avoid going over your credit limit, if you use credit cards for your expenses, is setting a budget — but it goes hand-in-hand with tracking your expenses. Harzog says she’s seen people with budgets in place but who don’t track their expenses, which can be problematic.
“They don’t really pay attention to when they spent twice as much on restaurants as they meant to,” she says.
Apps Mint or You Need a Budget (YNAB) can track where your money is going and help you set limits for how much you can spend in certain categories.
“I used to love to eat out, so I had a limit on what I would allow my husband and I to spend at restaurants. Something an app can help you set limits for yourself, where you’ll get emails or text messages that say ‘Hey, don’t go out. You’ve reached your limit,’” Harzog says.
Ask For a Credit Limit Increase
You can also give yourself some breathing room by asking for a credit limit increase, but be careful if you’re in a financial bind or you’re prone to spending too much. Keep in mind as well that requesting a credit limit increase may result in a ding on your credit score, if the issuer pulls a so-called “hard inquiry” on your credit report.
If you actually plan to use the extra credit, and carry a balance month over month, then asking for an increase is probably not a good idea.
However, if your intention is to simply lower your credit utilization, then it could be a smart move.
Before taking any action, ask yourself why you want or need more available credit.
Apply For a Balance Transfer Credit Card
If you have a high interest rate and you’re in an endless cycle of trying to pay down the credit card balance, a balance transfer credit card could prove helpful.
A balance transfer credit card gives you time to pay off debt without paying interest on the balance, typically for a period of 12 to 21 months.
Over the last few months, banks and credit card issuers have been worried that borrowers struggling financially during the coronavirus pandemic may be more ly to default on their credit card balances, so the number of balance transfer offers has dwindled.
“I’m not seeing as many balance transfer offers, but that doesn’t mean you can’t get one. If you still have a great credit score, you could transfer that debt to a balance transfer card,” Harzog says. “Call the card issuer and ask if that’s a possibility.”
What Happens If You Go Over Your Credit Limit?
Editorial Note: The content of this article is the author’s opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.
Exceeding the limit on your credit card and getting charged for it has been a rare occurrence since federal regulations curbed over-limit fees.
But there are other consequences for going over your credit limit, such as a denied transaction or a ding to your credit score if the purchase is allowed.
It’s important to weigh these factors and consider ways to avoid crossing your card’s credit limit.
What Happens If You Go Over Your Credit Card Limit?
If you haven’t opted in for over-limit protection and go over your credit limit, what happens depends on the issuer. A Bank of America customer service representative told us that a transaction that exceeds the credit limit would be denied.
Other banks—such as American Express, Wells Fargo, Discover, Capital One, Citibank, Chase and U.S. Bank—have more flexible over-limit policies. Depending on the cardholder, they may approve an over-limit purchase and require you to promptly pay the amount over the limit, but without charging a fee.
For select cardholders, Chase offers a credit access line that allows for over-limit charges, approved on a case-by-case basis by Chase. The amount of your credit access line is posted on your monthly billing statement and can be canceled, changed or restricted at any times.
It’s best to call your issuer to find out the policy that affects your specific account.
If you have opted in to over-limit protection, some issuers may charge an over-limit fee if they have any. If you habitually exceed your limit, an issuer may decrease your limit or eventually close your account. Exceeding your credit limit also hurts your credit score.
Your utilization rate, or the amount of available credit you use, is an important factor in calculating your FICO credit score. The higher that percentage, the worse for your credit score.
So if you exceed the limit on your card, you are using more than 100% of your available credit, putting a dent in your score, even if you have zero balances on your other cards.
You may want to consider over-limit protection for business purposes.
If you often treat clients to lunch or dinner at expensive restaurants, you may want to avoid the embarrassment of having your credit card declined when paying for the meal.
But make sure you have the money necessary to pay back the over-limit quickly. Also, make sure to avoid consistently going over the limit, even in these business cases, because the issuer may decrease your limit or close your account.
How To Avoid Going Over the Credit Limit
Whether or not you’ve opted into over-limit protection, it’s better to avoid transactions that exceed your limit. Consider the alternatives.
Many restaurants and stores allow transactions to be split among several cards if the transaction amount is too much for one credit card to accommodate. Many issuers also offer mobile alerts that ping you when you use a high percentage of your credit limit.
That can help you keep tabs on your spending and keep you from accidentally overcharging your credit card.
Charge cards: If you need a flexible credit limit, you may want to consider a charge card. Similar to a credit card, charge cards allow you to make charges that you pay at a later point.
But charge cards don’t have preset credit limits, so you can, say, charge $100 one month and $1,000 the next. The catch? You must pay back the entire amount you charged each month by the due date. If you don’t, the issuer can charge heavy fees or even close your account.
Charge cards typically come with an annual fee that can range from $95 to $450.
Increase your limit: If you find yourself getting close to exceeding your credit limit on a regular basis, you may want to request a limit increase.
You generally can do this by submitting an online request after logging into your account or by calling your issuer using the phone number on your card.
Have a specific increase in mind and a good reason for the request, such as an upcoming large purchase.
You may need to provide your annual income (including personal, shared and optional income), employment status, monthly mortgage or rent payment; and the average amount you spend each month on your credit cards. If the increase request is sizeable, your issuer may even pull your credit report or ask for additional documentation. Approval may take longer, too, for larger requests.
Your chances of approval is higher if your account has been opened for a while, your payment history is positive, your credit score is high, and your income has increased.
If your increase request is denied, don’t despair. Issuers routinely increase limits 15% to 20% on accounts with good payment history 12 to 18 months after an account is opened.
They also review your account automatically every year and may up your limit modestly then.
This is what happens when you go over your credit limit
Credit cards certainly have their limits, but it is often possible to go over them. And is going over your credit limit bad? When you go over the limit on your credit card two key things can happen—you pay an over-limit fee and you hurt your credit score.
Due to restrictions in the Credit Card Accountability, Responsibility and Disclosure Act, some issuers have stopped letting cardholders spend beyond their credit limits.
Others still have a credit card equivalent of overdraft coverage. That option, though, comes at a price.
If you go over your limit, you’re charged an over-limit fee of up to $25 for the first instance and up to $35 for the second, according to the Consumer Financial Protection Bureau.
Your credit score can also end up taking a hit.
Going up to your credit limit equals being overutilized
Credit utilization, or credit utilization ratio, is how much debt you’re carrying compared with credit that’s been extended to you.
Credit utilization, also known as debt utilization, is a major component of most credit score scoring models.
To maximize your score, it’s generally recommended that you keep the amount of debt you owe — collectively and on individual credit cards — below 30% and ideally no more than 10% of your total available credit lines.
Consider a credit card with a credit limit of $2,500 that’s maxed out with a balance of the full $2,500. That’s 100% credit utilization. To hit the sweet spot of 10%, you need to carry a balance of no more $250 on that card. No more than $750 is the 30% maximum upper limit.
Maxing out your credit cards lowers your credit scores. The amount of the hit to your score varies depending on where your score is at the time you maxed out the account.
For example, someone with a good score of 780 would weather anywhere from a 25 to 45 point drop for using all their available credit limit, according to a test scenario conducted by popular credit scoring model Fico. FICO, +0.91%
Going up to your credit limit equals bad news
Going over your limits makes things worse.
“The FICO score may differentiate between someone who is at their credit limit of 100% utilized on their revolving credit obligations, and someone who has exceeded their credit limit at more than 100% utilized,” Ethan Dornhelm, senior principal scientist at FICO, said in an email. “Our research has found that consumers with revolving utilization ratios in excess of 100% represent greater risk of default than consumers at or below 100% utilization.”
VantageScore, another popular credit scoring model, may also penalize consumers for going over their limits, though, according to a spokesperson, it caps utilization at 110% — meaning if your utilization is actually at 120%, it would only be considered as 110%.
That 110% on your credit card with a limit of $2,500 would equal a balance of $2,750.
“Generally speaking, if someone goes over their limit, it has a negative impact on a score,” Rod Griffin, director of public education for Experian EXPGY, +0.35%, said in an email. “The fact that you’ve exceeded your limit, regardless of how much you’ve exceeded it by, is considered negative.”
Keeping your credit in line
Of course, going over your credit limit only affects your credit score if the issuer reports the faux pas to the three major credit reporting agencies.
Some may not, and in other instances, you can keep it off your reports by paying off the excessive balance before your statement’s billing date.
You can check with your card company to learn specifically how and when they report an over-the-limit balance to the credit bureaus.
Also see: Are you overestimating the value of your travel rewards?
Regardless of how credit card companies handle the situation, it’s a good idea to avoid charging beyond your credit limit. And an even better idea is to avoid charging beyond 30% of your limit.
If you do need to max out your credit card, pay off the overage quickly. In addition to the initial over-limit fee, you could be faced with a penalty APR if you don’t pay off the extra charges in full by the end of the month.
If you have high credit card debt there are ways to help your credit score other than paying down your balance. You can also request a higher credit limit from the card issuer. Or, you can get a second credit card to increase your credit limit. A higher limit — even across two credit cards — reduces your credit card utilization.
To see how your credit card balances affect your credit scores, check your credit score regularly. Your credit report card includes a view of your credit utilization. And your score and report card are updated every two weeks.