What Is an Over-Limit Fee?
Let me explain what an over-limit fee really is. It's a penalty that credit card companies charge when you, as a cardholder, make purchases that push your balance over your assigned credit limit. In the old days, if you tried to buy something beyond your limit, the transaction would just get declined. But then companies started letting those purchases go through and slapping you with a fee instead. That all changed with the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act in 2009, which put a stop to that automatic practice.
Key Takeaways
- An over-limit fee is a penalty for credit card customers who go over their credit limits.
- In the past, companies could set their own fee amounts, but now they can't charge more than the exceeded amount.
- The 2009 CARD Act introduced protections against surprise or excessive fees.
- Today, you have to opt-in to even be able to exceed your limit and face these fees.
- Since the CARD Act, over-limit fees have pretty much vanished.
How an Over-Limit Fee Works
Over-limit fees are one tool credit card companies use to handle their risks. Remember, credit cards are unsecured debt, so if you default, they can't seize any collateral. That's why they try to steer you away from risky moves like spending beyond your limit. By hitting you with a fee, they discourage that behavior and make some extra money in the process.
Back in the day, many companies would automatically sign you up for programs that let you go over your limit and trigger the fee. But the 2009 CARD Act changed the rules. Now, you can't exceed your limit unless you specifically opt-in. In exchange for that flexibility, you're opening yourself up to potential fees. At the same time, the Act caps those fees—you can't be charged more than the amount you went over. For instance, if you exceed by $50, that's the max fee they can apply.
Here's an important point: Paying off your full credit card balance every month is your best bet. It keeps you clear of over-limit fees and those steep interest charges.
Managing Over-Limit Fees
When you get a credit card, it comes with a set maximum you can spend. This limit varies based on your credit history. Say you have a solid credit record—you might get approved for $10,000. But if your history is spotty, you could be looking at just $2,000. These limits are there to protect the company from too much risk.
You need to check your statements regularly to track your balance and see how close you are to that limit. Fees kick in anytime you go over, whether it's from a purchase, interest, a late fee, or anything else that adds to your balance.
I recommend not opting in to over-limit capabilities. That way, you avoid surprise costs. If you don't opt-in and try to exceed, the transaction gets denied, which alerts you that you're at your max without any fees. And if somehow a transaction slips through without your opt-in, the company can't charge you—contact them to get it removed if you spot it on your statement.
How Much Is an Over-Limit Fee?
Under the CARD Act, companies can't charge more than the amount you exceeded. They also can't hit you with a fee more than once per billing cycle, and if your balance stays over, they can't charge consecutively more than twice.
As of 2021, the first fee caps at $27, and a second within six months at $38. But honestly, since the CARD Act, these fees are rare. Take American Express—they haven't charged one since 2009.
Even if over-limit fees are fading, going over repeatedly can still hurt you. You might face higher interest rates, a cut to your credit limit, demands for earlier payments, bigger minimums, or even card cancellation.
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