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Understanding Credit Limits and How They Affect Your Credit Score

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding your credit. For any mortgage-related needs, feel free to call us at 213-732-3074.

Does Going Over Your Credit Limit Affect Your Credit Score?

Exceeding your credit card’s borrowing limit can negatively impact your credit scores and result in additional fees. When you go over your limit, your credit utilization rate—the percentage of your borrowing limit represented by your outstanding balance—exceeds 100%. This high utilization rate can significantly lower your credit score.

Credit utilization is a crucial factor in credit scoring models like FICO and VantageScore®. Generally, a lower utilization rate is better, with individuals maintaining rates below 10% often having the highest scores. If your utilization rate was low before exceeding the limit, your score might drop significantly. Conversely, if your utilization was already high, the additional impact might be less severe.

What Happens When You Go Over Your Credit Limit?

If you attempt a purchase that exceeds your credit limit, several outcomes are possible:

• Payment Declined: Unless you’ve opted into overdraft protection, the payment will be declined without any fees. Even with overdraft protection, the transaction may still be declined based on the issuer’s policies.
• Overdraft Fee: If the transaction is approved and you’ve authorized overdrafts, you may incur a fee. The fee can be up to $25 for the first instance and up to $35 for subsequent instances within six months, but it cannot exceed the amount by which you went over the limit.

How to Avoid Going Over Your Credit Limit

To prevent exceeding your credit limit, consider the following strategies:

• Opt-Out of Overdrafts: When applying for a card, refuse overdraft approval. If you’ve already opted in, you can change this via your bank’s website, app, or customer service.
• Set Alerts: Set up notifications to alert you when you’re nearing your credit limit.
• Keep a High-Limit Card for Emergencies: Maintain a card with a high limit for emergencies, and use it occasionally to prevent the issuer from closing it due to inactivity.

What to Do if You Go Over Your Credit Limit

If you exceed your credit limit, take these steps to mitigate the impact:

• Make a Payment Immediately: Reduce your balance below the limit as soon as possible to avoid additional fees.
• Request a Higher Limit: If your credit score is decent, ask for a higher limit to prevent future overdrafts.
• Stop Using the Card: Pause any recurring expenses on the card and focus on paying down the balance.
• Consolidate Debt: Consider a debt consolidation loan or balance transfer card to manage high balances and reduce interest charges.
• Seek Credit Counseling: If you have multiple high-balance cards, consult a certified nonprofit credit counseling agency for a debt management plan.

The Bottom Line

Exceeding your credit card’s borrowing limit can lead to costly fees and lower credit scores. Avoid this by not allowing overdrafts and keeping your balances below 30% of your limits. Monitoring your credit score and paying down high balances can help improve your credit health.

For any mortgage-related inquiries, call O1ne Mortgage at 213-732-3074. We’re here to help you make informed financial decisions.

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