If you don’t track your credit card spending carefully, you may find yourself going over your credit limit. It’s also fairly easy to do with a card that has a small credit limit. If you’re over the limit, don’t panic. Thanks to the Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act), overlimit fees are pretty rare these days, and taking the proper steps can help you avoid going over the limit ever again.
It used to be that overlimit fees were big business. Credit card companies charged anywhere from $25 - $39 every time you went over the limit. What’s more, they could stack charges, allowing them to push your balance over the limit (for example, if your payment was late and you were charged a late fee and that late fee put your balance over your credit limit, you would be charged an overlimit fee as well).
After that CARD Act went into effect in February 2010, the way overlimit fees were structured changed significantly. Under the new laws:
As a result of this act, the number of people charged overlimit fees has been reduced to a mere 1%.
Even if you don't get charged a fee for going over your limit, you should still avoid it as much as possible. About one third of your credit score is based on your available credit, or how much credit you use compared to how much you have. When you max out or exceed your credit card limit, your credit score drops.
However, we all make mistakes. If you find you've gone over your limit, take these steps to get back on track:
Once you've brought your balance down below the limit, it's time to address the bigger issue--your spending habits. Going over the limit is a sign you're relying too heavily on credit. It can also be the beginning of a vicious cycle of opening up new lines of credit once you’ve maxed out your credit card.
The Credit CARD Act has made overlimit fees primarily a thing of the past. It’s still smart to monitor your credit use and spending habits to make sure you’re well below your credit limit.