What Happens If You Go Over Your Credit Limit (and How to Prevent This From Happening)

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The amount of debt you have on your credit cards correlates closely to how good your credit rating is. The amount of credit card debt divided by your credit limit is called credit utilization and accounts for 35% of your score. Most experts recommend keeping your credit utilization rates below 30%. What happens to your credit score if you get close to 100% credit utilization or even over 100% (meaning you go over your limits)?

How To Go Over Your Credit Limit

On most credit card programs, if you are at your credit card limit, or a charge would put you over your limit, your card will be declined at the point of sale. Some credit cards have programs to allow you to go over your credit limit. However, the CARD act requires that all credit cards allow a consumer to go over their limit only if they specifically opt in to such a program and also set limits on over the limit fees. It’s actually very uncommon for credit cards to have over-the-limit fees in the wake of the CARD act. Creditcards.com found in June of 2015 that of all they cards they surveyed only 5 (all business cards) had over the limit fees.

Another way to go over your limit is to be close to your limit and allow interest charges or late fees to put you over. This can start a vicious cycle where you begin have trouble making the new increased minimum monthly payment (payment plus the amount you are over) and this trouble keeps you at or over your credit limit.

What Happens To Your Credit If You’re Over the Limit

Your credit will suffer if you are at or over your credit limits. Having a maxed out credit card can knock between 25 to 45 points off of a 780 credit score and 10 to 30 points off of a 680 score. Having a credit card balance that is over 100% utilization will sink your credit score even further. VantageScore, the scoring model sold by the three major credit bureaus (Experian, Equifax and TransUnion), caps utilization at 110 percent, meaning that if you are at 120%, they only count 110%. However, if you pay your card down to under the limit before your next payment due date, the bank may not report that you were over the limit to the credit bureaus.

What happens to Your Account If You Go Close to Or Over the Limit?

If you find yourself going over your limit, you could find your credit account being closed, your interest rates raised and your credit limits cut, which of course puts you even more over your credit limit and makes it harder for you to recover. Penalty interest rates can reach as much as 29.9% interest.

If you do go over your limit, your minimum payment will increase to 4% of your balance (the normal monthly minimum), plus whatever amount you are over the limit. If you are going to have trouble making this bigger payment, you could damage your credit further if you find yourself being more than 30 days late. If you’re past the balance due date by even one day, you will find yourself incurring a late fee, putting you even more over the limit.

How to Avoid Going Over the Limit

To avoid the precarious situation of being maxed out on your credit cards, or worse yet over the limit, here are some tips for staying out of trouble:

  • Raise your current credit limit — before you need it. If you’ve been a good customer, your bank may gladly raise your limit. However, don’t wait until you’re actually over your limit — once you’re at your credit card limit, the bank is not going to consider you in good standing and may not want to increase their risk by raising your limits. Be proactive and ask well in advance.
  • Keep a watchful eye on your credit card balances. Log into your account online to see what your current balance is. You can also call your credit card’s toll free number to get your balance. Keep in mind that the balance you see may not have pending transactions listed and your balance may be higher than what the bank is reporting as your current balance.
  • Have a spare credit card for emergencies, and only use it if necessary. Make sure that this spare card has a low interest rate and a good fee structure.
  • Only spend money that is actually in your hand or your checking account. If you don’t have an emergency savings fund, now is the time to start one. There are other alternatives to credit cards, like debit cards or prepaid cards.
  • Never make the minimum payment — try to pay off the balances as much as possible each month. If you are pretty much maxed out on all your credit cards, work on paying down the one with the highest interest rate first.
  • See if you can get a debt consolidation loan to pay off all of your cards and give you one monthly payment.
  • Most credit cards have alert systems that you can set to notify you when you go over a certain balance, so you can monitor your credit accounts closely.

If you’re near your limits, set up automatic payments more than once per billing cycle to keep your balances out of the danger zone.

Related Articles:

Credit Card Utilization: What You Need to Know

How Long Should You Keep Credit Cards Open? 

Good (And Not-So-Good) Alternatives to Credit Cards

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