The majority of credit cards assign you a credit limit when you open an account, typically starting at $200 and going up to tens of thousands of dollars. But what happens if you try to charge something to your card when you've already hit your max spending power?
Below, CNBC Select examines whether you can go over your credit limit, what fees you might face if you do and alternative options if you're short of money.
Can you go over your credit limit?
Yes, you can go over your credit limit, but there's no surefire way to know how much you can spend in excess of your limit. Card issuers may consider a variety of factors, such as your past payment history, when deciding the risk of approving an over-the-limit transaction.
Any approved transactions above your credit limit are subject to over-the-limit (or over-limit) fees. This credit card fee is typically up to $35, but it can't be greater than the amount you spend over your limit. So if you spend $20 over your limit, the fee can't exceed $20.
Over-limit fees can't be charged without your consent, thanks to the CARD Act of 2009, which requires you to opt-in to approve it.As a result of these regulations, most card issuers have done away with over-limit fees. So the default for any transactions over your credit limit may be that the transaction is denied.
But if your card issuer charges an over-limit fee and asks for your one-time consent and you approve, you can change your mind and opt-out at any time. If you don't opt-in, your card issuer will decline any purchases you attempt to make over your limit. And even if you opt-in to over-limit fees, transactions exceeding your credit limit may still be denied.
Should you go over your credit limit?
While spending over your credit limit may provide short-term relief, it can cause long-term financial issues, including fees, debt and damage to your credit score.
You should avoid maxing out your card and spending anywhere near your credit limit. Best practice is to try to maintain a low credit utilization rate.
"The golden rule was 30%, and I always say 10% if you really want to get a high credit score," Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report, tells CNBC Selectof the ideal utilization rate.
If you go over your credit limit, Harzog recommends you sit down and consider why you went over your limit in the first place and review your budget. You should figure out what purchases caused you to spend more and whether you can make any changes to your spending habits.
Alternatives if your credit limit is low
If you have a low credit limit or your credit limit recently got cut, you may wonder what you should do to avoid going over-limit.
If you've had a low credit limit for a while and currently have a stable job, you may want to request a credit limit increase. This can be a good idea if you have good credit (scores 670 to 739) or excellent credit (scores 740 and greater) or if you haven't updated your income in a while and make more money than what's listed. Take note, your card issuer may pull your credit report during the request, which may cause a small, temporary ding to your credit score.
On the other hand, if your credit limit was reduced, you may want to consider other options. Cardholders with good payment history and a stable job should call their card issuer and ask for reconsideration, Harzog says. When you call, ask why your credit limit was cut, explain that your account is in good standing and that you have a stable source of income to pay off your bill. This may shed light on why your limit was lowered and potentially result in your credit limit increasing — though there is no guarantee.
Meanwhile, cardholders with a history of missed payments or maxing out their card shouldn't call for reconsideration since it's probably not a good idea to draw attention to yourself, Harzog says.
Instead of asking for a credit limit increase on the card that had a reduction, these cardholders (and even those with good credit) may want to consider any other cards they have.
"Start with what you already have. If you have three credit cards and one got the limit cut, see if you can get an increase on one or both of the other two," Harzog says.
Learn what to do if you didn't get the credit limit you wanted.
When to apply for a new credit card
Cardholders with only one credit card and a low credit limit may want to consider opening a new credit card, but not before assessing the potential risks. For starters, if you were recently laid off or faced a reduction in income, you may not be in the best position to be approved for a new card, and there's no sense in adding a new credit inquiry to your credit report if your chances are low.
And if you have a history of maxing out your card, you should be aware that more credit can lead to more debt.An additional credit limit can be helpful for affording your expenses, but it can also be harmful if you overspend.
Before opening a new card, give yourself clear guidelines on how you'll use the card and stick to keeping a low credit utilization rate. When it comes time to pay your bill,make on-time payments of at least the minimum every billing cyclefor all of your cards with the goal of paying in full to improve your credit score and minimize your debt.
When applying for a new card, check your credit score first to narrow down your options. Then consider cards based on your credit score. For instance, the Capital One Platinum Credit Card is geared toward fair or average credit, while the Citi Double Cash® Card (see rates and fees) is great for consumers with excellent credit.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
