A credit line is the total amount that can be charged to a credit card, including purchases, interest charges, and fees. Each credit card has its own credit line, and lenders often define these limits based on credit scores and other creditworthiness indicators. Your credit line can be $500, $1,000, $5,000 or more. Whatever your credit line, spending beyond that limit is generally a bad idea.
Rejected transactions are the most likely consequence of spending in excess of your credit line. However, you should still understand exactly what happens if you exceed your credit line, as you will begin to experience the negative effects of a high credit card balance long before reaching the credit line or using up your card.
Can you exceed your credit line?
The consequences of overcharging depend on whether you sign up for a credit card or charging card. Some charging cards don’t come with a credit limit, as long as you can pay off your monthly balance. Other charging cards offer the same spending limits as credit limits, so pay attention to beautiful print.
What happens if you exceed your credit line also depends on whether you choose to participate in protection beyond the limit, a feature that allows you to spend beyond your credit line. Over-the-limit protection programs give you the freedom to make purchases that exceed infrequent limits, but they also come with significant consequences. Many of the best credit cards no longer offer over-the-counter protection.
If you don’t enable over-the-limit protection for your credit card account, your transaction will likely be declined. If you choose to use protections that exceed the limit, your fees may be charged – but you may be affected by fees, higher interest rates, or lower credit limits. You may even see your credit score drop as the balance on your card increases. If you make too many fees that exceed the limit, your credit card issuer may close your credit account.
Here are the most common consequences associated with spending beyond your credit line:
Your credit card may be rejected.
You can pay a fee that exceeds the limit.
Your interest rate may go up.
Your credit limit may go down.
Your credit score may decrease.
Your credit issuer may close your credit account
Fees that exceed your credit limit
The Credit Cards Act of 2009 limited the number and types of fees that can be charged for a transaction that exceeds the limit. For starters, credit card issuers are only allowed to charge excess fees to cardholders who have chosen to participate in protection plans that exceed the limit. If you don’t sign up for protection that exceeds the limit, you won’t be charged any over-the-limit fees — but you won’t be able to spend beyond your credit card limit either.
The Credit Cards Act also limits credit issuers to a fee that exceeds the limit for each payment cycle and limits the amount that issuers can charge. However, card issuers are not allowed to charge over-limits greater than the number of over-limit fees. For example, if you exceed the $10 credit limit, your over-limit fee may not be higher than $10.
Should you exceed your credit line?
It’s almost never a good idea if you exceed your credit line. The consequences of exceeding your credit line, even if you have chosen protection beyond the limit, tend to outweigh the benefits of buying more on your credit card.
Since spending beyond the credit line can raise interest rates and lower your credit score, try to avoid exceeding the credit line except in absolute emergencies.
Instead, look for alternative ways to pay. For example, if you have enough money in your checking account to cover expenses, try putting it on a debit card. Yes, credit cards are safer than debit cards for most types of purchases — but if you choose between using a debit card and exceeding your credit line, withdraw your debit card.
Alternatives if your credit line is low
If you find yourself in a financial situation where more purchasing power can actually benefit you, then the process of asking for a higher credit line is quite simple. If you want to change your credit line, you can ask the card issuer to increase the credit line. In most cases, you can claim a higher credit line by logging into your credit card account and making an online request — no need to call customer service or wait. Requesting an increase in your credit line is more likely to be approved if you have good credit, So check your credit score before contacting the lender.
When you ask for an increase in the credit line, your lender will conduct a hard credit investigation on your credit report. This can reduce your credit score by a few points, but if your credit line requirement is approved, then the new credit will reduce your total credit use and increase your credit score.
Remember, the increase in the credit line is approved on a case-by-case basis. However, something as easy as updating your income with your credit card issuer can make you eligible for an automatic credit limit increase.
How overstepping your credit line affects your credit score
Exceeding your credit line has a good chance of reducing your credit score. Why? Because 30 percent of your credit score is based on your credit utilization rate — that is, the ratio between available credit and your existing debt.
If you exceed your credit limit, your debt is exceeding your existing credit level on that account. Depending on the number of cards you have, this doesn’t necessarily mean you’ll make the most of all your credit, but if it leaves you using more than 30% across all your accounts, then that still has the potential to reduce your credit score.
How overspending affects interest rates
Spending beyond your credit line can affect your interest rates in a number of different ways. If you exceed your credit limit on a particular credit card, your card issuer may increase the interest you pay on that card. If you have multiple credit cards in your name, your other credit card issuers may notice a change in your credit score and also increase their rates. If you decide to apply for an additional credit card in the future, the lender can review your credit report, see if you have a history of overspending, and set the interest rate accordingly.
Tips to avoid exceeding your credit line
If you want to avoid exceeding your credit line, it’s important to know how much credit you currently have. Remember, it may not be a credit card purchase that causes you to exceed your credit line. If you are having a very high balance on your credit card, then the monthly interest charges may be enough for you to exceed the limit. Charging interest rates that exceed the limit probably won’t lead to the same consequences as making an over-the-limit purchase, but it’s still something you should try to avoid.
Here are five tips to help you manage your credit and avoid exceeding your credit line:
Consider your credit card balance regularly. When you sign in to your online credit card app or account, you’ll see both your current balance and your existing credit. Find out how much credit you have left to spend and plan accordingly to continue spending under that amount.
Pay your balance as quickly as possible. Paying off your credit card balance gives you more credit to spend on future purchases. In addition, reducing or eliminating your revolving balance will reduce your credit utilization rate and may increase your credit score.
Request an increase in the credit line. Asking for an increase in the credit line is one way to add a little more room to your credit. Be careful not to use up your new credit limit as soon as you receive it.
Sign up for a credit card that transfers the balance. If you’re having trouble paying the balance on your current credit cards, the balance transfer credit card can help you. The best balance transfer credit cards that offer a referral 0 percent APR usually last from 15 to 21 months, giving you time to pay off your debt without having to pay interest on your balance.
Sign up for a high-limit credit card. While your credit line mostly depends on your credit history, choosing the right card can be helpful. Credit cards for excellent credit often offer higher limits. Check out our recommendations for the best high-limit credit cards.
The bottom line
Exceeding your credit line is rarely a good option. In most cases, your transaction will simply be rejected — but if you’re close enough to your credit line and you have to worry about your next purchase or interest charge pushing you to the top, then it’s time to think about paying off your credit card debt.
If you’re worried about exceeding your credit line, check your credit account regularly. By paying attention to your credit card balance and avoiding purchases that exceed existing credit levels, you can avoid the consequences of spending beyond your credit card limit.