If you go over your credit limit , you may be subject to fees and higher interest rates. Learn more about what happens if you go over your credit limit.
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What is a credit limit?
Your credit limit is the maximum amount of money you’re allowed to spend in a day, cycle, or month. It’s set by your credit card issuer when you first get the card, and it may change over time.
There are a few different ways issuers calculate your credit limit. Sometimes, they use your income, employment history, credit score, and other financial information. Other times, they start with a low limit (say, $500) and gradually increase it as you demonstrate responsible credit behavior.
Your credit limit also might be related to the type of card you have. For example, secured credit cards typically have lower limits than unsecured cards because they require a cash deposit that serves as collateral in case you default on your payments.
What happens if you go over your credit limit?
If you go over your credit limit, you may be charged a fee. Your credit card issuer may also lower your credit limit. Going over your credit limit can also hurt your credit score.
You may be charged a fee
If you go over your credit limit, your credit card issuer may charge you a fee. The fee may be a flat fee or a percentage of the amount you’ve gone over. For example, if your credit limit is $1,000 and you go over by $100, your issuer may charge you a $25 fee.
Your issuer may also raise your interest rate if you go over your limit. So, not only will you have to pay the fee, but any new charges you make will accrue interest at a higher rate.
If you regularly exceed your credit limit, it can damage your credit score. That’s because going over the limit indicates that you’re using more of your available credit than is considered healthy by the scoring models. Additionally, if your issuer reports the fees to the credit bureaus (and most do), they’ll also show up on your report and further hurt your score.
Your credit score may be affected
If you go over your credit limit, your credit score may be affected. Depending on how much you go over, and how often this occurs, your credit score could drop significantly. Additionally, going over your credit limit may result in fees being charged by your credit card company.
You may have trouble making future purchases
If you go over your credit limit, you may have trouble making future purchases. Your account may be closed or you may be required to pay a higher interest rate.
How to avoid going over your credit limit
Your credit limit is the maximum amount you’re allowed to spend in a day, month, or year. It’s important to know your credit limit so you can avoid going over it. If you go over your credit limit, you’ll be charged a fee. The fee is typically around $25.
Keep track of your spending
One of the best ways to avoid going over your credit limit is to keep track of your spending. You can do this by opening a separate savings account or creating a budget. Then, every time you make a purchase, you can transfer the money from your savings account or budget to your checking account. This will help you keep track of your spending and ensure that you don’t overspend.
Another way to avoid going over your credit limit is to use a credit card with a lower limit. If you typically spend a lot of money each month, you may want to consider using a card with a lower limit so that you are less likely to go over it. You can also ask for a higher limit on your credit card if you feel that you need it.
If you do go over your credit limit, don’t panic. You can call your credit card company and explain the situation. Most companies will work with you to find a solution that works for both parties.
Set up alerts
One way to avoid going over your credit limit is to set up alerts with your credit card issuer. You can typically do this through your online account portal or mobile app. Once you’ve set up alerts, you’ll be notified in real-time or near-real-time whenever you approach or exceed your credit limit. This can give you a chance to adjust your spending before you actually go over.
If you’re not comfortable giving your credit card issuer permission to monitor your spending in this way, another option is to simply check your balance more frequently. Many issuers will allow you to set up balance alerts, so you can get text or email notifications whenever your balance reaches a certain point. Alternatively, you can log in to your account portal or app on a regular basis to check your balance manually.
Make a budget
The first step to avoid going over your credit limit is to make a budget and track your spending. This will help you be aware of how much money you have coming in and going out each month. You can use a budgeting app or spreadsheet to track your income and expenses.
Once you know how much you typically spend in a month, you can set a budget for yourself. Make sure to include a buffer in your budget for unexpected expenses. Then, track your spending throughout the month to make sure you are staying on track.
If you find that you are regularly going over your credit limit, it may be time to reevaluate your budget. You may need to adjust your spending in order to free up some extra cash each month. Alternatively, you may need to look for ways to increase your income.