Credit Card Over Limit - Here Is What You Need To Know
Did you accidentally go over your limit on a credit card? Are you wondering if it's possible to go over your limit and what the impact might be? In this article I'll tell you all you need to know about going over your limit on a credit card.
Going over limit on a credit card means having a balance greater than your credit limit. Any transaction can take you over limit including interest and fee charges and almost all credit cards will charge a £12 penalty fee if you go over your limit.
Below I'll talk you through the details of what the full impact of going over limit is, how you can prevent it and what you should do if you accidentally go over your credit limit.
How can you go over your credit limit?
Going over your credit limit is easier than you might think and it happens to a lot of people every single day.
Credit cards set limits for customers which is the maximum amount of money you are allowed to borrow on the card at any one time.
Unfortunately, if you choose to go above that amount, many credit cards will authorise the transactions anyway, taking your balance above the agreed limit.
It's not all about profiteering though - a large part of the reason is because credit card companies are wanting customers to have the best experience and having your credit card declined when you're out shopping or paying for dinner in a restaurant can be an awkward and embarrassing situation.
Most credit card companies will operate a Shadow Credit Limit - this is an internal amount they will allow customers to borrow which is higher than your credit limit to allow you to spend more if you absolutely have to. Sometimes this is set at a fixed amount over the limit while other providers may allow 10% on top.
A small number of credit card companies actually don't allow transactions that will take you over your limit. The moment your credit card balance is about to go over, all of your transactions will be declined until you make a payment to the credit card.
Even in these cases, there are three ways in which your card can go over limit:
- Any interest or other fees charged by your credit card company can still take you over if your balance is too close to the limit.
- Offline transactions - although rare, these do happen in situations such as paying on board a plane or in cases where connectivity is impossible.
- Post-authorisation adjustments - this are more common than you might think. If you go to an automated petrol pump at night, these may run an authorisation for £1, before changing the transaction amount to your actual spend afterwards. Similarly, if you add a tip at a restaurant in writing, your transaction amount can change at a later date accordingly (although nowadays a lot of that is done via the payment machines).
Penalties and charges for going over limit on a credit card
Technically going over limit on your credit card is against your Terms and Conditions. There's only two real terms that customers can and do break often with the other one being the requirement to make monthly payments.
The maximum penalty fee for going over your limit is set by the FCA at £12 and the vast majority of credit card companies will charge the £12 fee. In fact, I don't know of a single credit card company that charges over limit fees where those fees are not £12.
However some credit card companies are beginning to roll out products that do not charge over limit fees to try and make their products more transparent and customer-friendly. These are very rare, but in those cases, no fee will be due if you do go over limit.
Financially, there is no other penalty for going over your limit. You will have to pay the fee as part of your minimum payment so the next minimum payment will go up by £12.
Most credit cards will also cap your over limit fees to £12 per statement month so if you go over twice in a month, you won't get charged two lots of fees.
The one big downside of going over your limit is the impact on your credit file so let's talk about that in more detail.
Impact on credit history from going over limit
Every month, credit card companies will submit information about your account to the credit reference agencies. In many cases, they submit data not only to the credit reference agency they use during the credit assessment but all 3 in the UK.
As part of the data that they submit, they provide flags for accounts going over limit and although these are slightly different in how they are reported, if you go over limit at some point during the month, that may come through in the data.
All 3 bureaus will take data which checks if the account is over limit on statement date and at the end of the reporting month. However, if you go over limit in the middle of the month, it depends on the specific credit card company as to whether that does or does not go through to the credit reference agencies.
In many cases, if you go over limit for a short time and rectify it immediately, you will not actually get a negative mark on your credit file.
In cases where you are over limit on your statement date, the data will definitely pass through to the credit bureau, but it's not as bad as you may think. In the short term, it will impact your ability to get premium credit cards or mortgages, but that'll only have an impact for a 3 to 6 month period in most cases.
If you're applying a year after going accidentally over your limit on one credit card with no other negative markers, you are highly unlikely to see any impact at all on your eligibility for other products.
Ways to stop your credit card going over limit
If you've realised that you accidentally or unintentionally went over your credit limit, the first thing you should do is pay into your credit card to bring the balance back below your limit.
Make sure you make a faster payment - to do this, log into your bank account and find out on your credit card company's website what account you need to send money to. Usually your credit card number should be used as the reference but double check this before sending money.
Faster payments will arrive into the credit card company's bank account immediately and the rest is up to how good their technology is. A lot of credit card companies will credit a faster payment within a few hours.
This means that if you go over your limit and make a payment into your account right away, there will be no over limit marker and no fee charged - the fee is assessed on an overnight batch run so if your account balance is below the credit limit when that happens (often at around 3 a.m.), you should be alright.
It's also worth calling the credit card company and sympathetically explaining your situation. If this is your first time going over limit and you explain yourself, you might just find they will waive the fee and make sure your credit profile is not affected - well worth the 5 minute phone call.
In general, avoid getting too close to your credit limit. If your balance is always high, a recurring transaction or even something like interest being added to your balance can make you go over your limit unexpectedly.
If you find yourself hovering just below your limit, see if you can either get a credit limit increase or a different credit card to solve the issue.
In any case, it's a good idea to address your debt situation and work out ways to pay down your outstanding balance. As well as being generally good for you and saving you interest, you'll also reduce the likelihood of going over your limit in the future.