What happens if you overdraw a credit card

Your credit card’s credit limit is the maximum amount you can charge to 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 — though there are consequences for doing so. 

If you go over the credit limit set by your card issuer, you may be charged high fees or interest penalties, take on lasting high-interest debt, and even affect your credit score. 

Here’s what happens if you go over your credit limit, and the best ways to avoid overspending.

If you make a purchase that goes past your credit limit, a few things could 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. 

“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, which like NextAdvisor is owned by Red Ventures. “Sometimes, they will actually let the transaction go through. It’s really at the card issuer’s discretion.” 

If your credit card issuer does allow the over limit purchase, here’s how it might affect your credit and interest. 

How does going over your credit limit affect your credit score?

There are several factors that credit bureaus use to calculate credit scores, and among the most important is your credit utilization ratio. Experts recommend keeping your credit utilization ratio below 30% to show that you’re using your credit line responsibly. But going over your limit can increase your utilization and have a negative impact on your credit score.

If your over limit charges also cause you to spend more than you can afford to pay off, you could affect your payment history, too. In the long run, if you don’t pay off your credit card balance in full, the revolving balance will impact your credit score, which may make it harder for you to open new lines of credit until your credit utilization improves. 

How does going over your credit limit affect your interest rate?

When you go over your credit limit, your credit card company may also increase your interest rate. 

Going over your credit limit could be one reason you would take on a penalty APR, which can be much higher than your ongoing interest rate. Read your credit card agreement for all the details on the actions that may trigger your penalty APR.  

Can You 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 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 out of 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.

Why would credit card issuers let me go over my credit limit?

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 and have the ability to spend beyond your limit. 

“There are all kinds of reasons, like 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.

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 like you can keep a constant eye on your bank account by setting up balance alerts that let you know you’re about to run out of available funds, you can do the same for credit card limits. Setting up a phone or email alert that warns you when you’re about to hit the maximum on your credit card will help avoid any negative consequences. 

When you get the alert from your card issuer, 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 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 like 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 like 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. 

Alternatives if You Have a Low Credit Limit

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 overspending. Requesting a credit limit increase may also result in a ding on your credit score, if the issuer pulls a hard inquiry on your credit report.    

If you plan to use the extra credit for spending 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 and you’re working to build a good credit score, 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, with many offers today ranging from 12 to 21 months interest-free. Some of the best balance transfer cards have few fees and long introductory periods. Before you get a balance transfer card, calculate how long you’ll need to pay off your debt, then compare different offers you may qualify for based on your credit score and debt balance.

For instance, the Wells Fargo Reflect® Card has 0% intro APR on qualifying balance transfers for 18 months from account opening with the option of an intro APR extension of 3 months with on-time minimum payments during the intro period (17.24% to 29.24% variable APR thereafter) But if you don’t need this long to pay off your debt, you may choose the Citi® Double Cash Card, which has an 18-month introductory period on balance transfers (18.24% to 28.24% variable APR thereafter) and ongoing cash back rewards you can earn on new purchases after your balance is paid in full.

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.”

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