How to Avoid Credit Limit Fees
Your credit limit is the maximum amount your credit card issuer has agreed to let you charge on your credit card account. Exceeding your credit limit may trigger a credit limit fee.
When the Credit CARD Act of 2009 required credit card issuers to allow cardholders to opt-in to credit limit charges, many of the major credit card issuers got rid of credit limit charges altogether. Still, many credit cards continue to assess a fee for cardholders who exceed their credit limits.
Fees and Penalties for Going Over Your Credit Limit
If your credit card issuer does charge an over-the-limit fee, the fee can be as much as $35. You can be charged one over-the-limit fee per month for up to three billing cycles if your credit card balance remains over the limit for each billing cycle. Or, your card issuer can charge additional over-the-limit fees if you pay your balance down, then exceed your credit limit again or if you get a credit limit increase and exceed the new credit limit.
Second, when you go over your credit limit, your interest rate can increase to the card's default or penalty rate, which in some cases is as high as 30%. This increased interest rate makes it more costly to carry a credit card balance beyond the grace period because you'll be charged higher finances charges on your balance.
Lastly, your credit score takes a hit. Since 30% of your credit score compares your debt level to your credit limits, that is your credit utilization, having an over-the-limit balance will cost credit score points.
How You Can Avoid Credit Limit Fees
It's possible to avoid being charged an credit limit fee. It takes a little action and monitoring on your part.
- Don't opt-in to credit limit fees. Your credit card issuer has to have your permission before they can charge you a credit limit fee. You can "opt-out" of over-the-limit transactions. Once you do, any transaction that would put you over the limit would be declined and you won't be charged an over-the-limit fee.
- Know your credit limit. It's much easier to go over your limit if you don't know what it is. To find out your credit limit, check your billing statement, log on to your online account, or call your credit card customer service using the number on the back of your credit card. If your credit card issuer has a smartphone app, you can download the app to access your account before making any new credit card purchases. Since creditors sometimes raise and lower credit limits, it's a good idea to monitor your limit regularly.
- Enroll in balance alerts. Some credit cards will email or text you when your balance is within a certain percentage or dollar amount of your credit limit. Check your online account or contact customer service to see if your credit card issuer offers these types of alerts.
- Keep your balance low. A low balance - 30% of your credit limit or lower - gives you room to make purchases without going over your limit. Not only that, it's better for your credit score. On a credit card with a $1,000 credit limit, keep a balance of $300 or lower.
- If you're not sure, check. Anytime you're unaware of your balance and credit limit, check your available credit before making a purchase. Many credit cards have an automated line available 24/7 for checking this type of information. Use the customer service number on the back of the credit card. If you have a cell phone, you can even call from the store before making your purchase.
What to Do If You're Charged an Credit Limit Fee
Your credit card issuer may be willing to waive the over-the-limit fee the first time you go over your credit limit. Just call your credit card issuer and ask if you can have the fee waived. They may be willing to remove the fee from your account as long as you've otherwise kept your account in good standing.
Otherwise, if you can't get the fee removed, pay your balance well below the credit limit to prevent being charged a fee next month. You'll have to reduce your credit card balance enough so that interest and fees won't put you over your credit limit again next month.