You generally cannot overdraft a credit card in the same way as a checking account. However, you can exceed your credit limit, often called an over-limit transaction. If you have opted in to over-limit protection, transactions exceeding your limit may be approved but typically incur fees.
Below, we take a closer look at credit card limits and how going over them can impact your finances and your credit scores
Table of Contents
Key Points
• You cannot “overdraft” a credit card like a checking account, but you may be able to exceed your credit limit.
• Your credit card transaction will usually be declined if it would put you over your credit limit, unless you opt in to over-limit charges.
• If you opt in to over-limit charges, transactions exceeding your limit may be approved but will incur fees (up to $35).
• Going near or over your credit limit can damage your credit by increasing your credit utilization rate above the recommended 30%.
• To manage or avoid over-limit situations, make additional payments or request a credit limit increase from your card issuer.
What Does It Mean to Overdraft a Credit Card?
Each time you use your credit card, your balance increases, which is part of how credit cards work. If you aren’t making payments against that balance, it will move closer and closer to your credit limit. Eventually, your balance could get high enough that you run up against that limit.
Usually, though, you won’t be able to go beyond your credit card spending limit. Instead, your card will be declined if you attempt to make a purchase that would put you over the limit. This is the result of the CARD Act of 2009.
Since the CARD Act, you can’t go over your card’s limit unless you specifically opt in to allow overages. In that case, it may be possible to go beyond your credit card’s limit.
The average credit card limit in the U.S. is currently approximately $29,855.
What Happens If You Overdraft Your Credit Card
What happens when you try to overdraft your credit card depends on whether you have opted in to over-limit charges. If you haven’t, your card will likely be declined; otherwise, you could incur fees and a hit to your credit.
Declined Transactions
By default, credit cards typically do not allow you to go over your credit limit. Instead, your card will probably be declined.
For example, imagine you have a credit limit of $5,000 with a current balance of $4,800. If you try to spend $250 and haven’t opted into over-limit charges, it will not result in a $5,050 balance on your card. Because your limit is $5,000, your card will likely be declined when you attempt to complete the transaction for the $250 purchase.
Over-Limit Fees
Since the CARD Act of 2009, you can’t be charged over-limit fees unless you opt in to them. In that case, you will be charged an over-the-limit fee that is usually up to $25 the first time you go over your limit, and up to $35 if you go over your limit a second time within a six-month period.
The CARD Act also states that banks must disclose over-limit fees in your credit card contract. If for any reason you have opted into over-limit fees, you should be able to opt out of these fees at any time.
Impact on Credit Score
If you go over the limit for your credit card, it can negatively impact your credit file. “The further away a person is from hitting their credit limit, the healthier their credit score will be, in most circumstances,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “A borrower’s debt-to-credit ratio, also known as their credit utilization rate, should ideally be no more than 30%. Higher utilization can negatively affect a person’s credit score.”
Your credit utilization rate is calculated by dividing your outstanding balance by your credit limit. If your balance is greater than the limit, your ratio would exceed 100% on that card, which could damage your credit until you lower the ratio.
Credit scoring models typically look at the balance-to-limit ratio on each individual card, as well as your aggregate (total) utilization, which is the sum of all your balances divided by the sum of all your credit limits. Both numbers can impact your score.
How to Avoid Overdrafting Your Credit Card
If you go over the limit on your credit card, there are several steps you can take to rectify the situation.
Make Additional Repayments
One of the most important credit card rules is to, whenever possible, pay more than the minimum amount due each month. This can be especially important if your credit card is over its limit.
Perhaps you have a minimum payment of $40, and you might normally pay that amount each month. In that case, consider upping your payment to $50 instead. Anything you can pay above the minimum will help you reduce your credit utilization; the more you can pay, the better.
This can also help you from falling into credit card debt, which can be a hard situation to get out of.
Request a Credit Limit Increase
Another way to reduce your credit utilization is to request a credit limit increase. For instance, if you have a total credit balance of $5,000 and a total credit limit of $10,000, your utilization on that card is 50%. If you can get your credit limit increased to $20,000, your utilization would go down to 25%, keeping it under the recommended 30% threshold.
Contact Your Provider
Sometimes, credit card issuers will increase your credit limit automatically, particularly if you’ve used your credit card responsibly over time. If not, you can call your card issuer and ask them to increase your credit limit. Usually, it’s best to do this after you’ve had the card for at least a few months.
When you make the request, the credit card issuer may review one or more of your credit reports. Keep in mind that this could result in a hard inquiry into your credit history; these checks can cause a small, temporary dip in your credit score. The card issuer may also ask for your current total annual income, employment status, and monthly housing payment, such as rent or mortgage.
The Takeaway
It usually isn’t possible to overdraft a credit card. Your card is typically declined if you try to charge above your credit limit. You may be able to go over the credit limit, but only if you opt in to over-limit fees. If you do opt in, you’ll be allowed to spend beyond your credit limit but will likely get hit with fees.
Keep in mind that going over your credit limit can have a negative impact on your credit profile. Ideally, you want to keep your credit card spending below 30% of your limit to help maintain healthy credit.
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FAQ
Do credit cards allow overdrafts?
In general, credit cards do not allow overdrafts like a checking account. By law (the CARD Act of 2009), your transaction will be declined if it exceeds your credit limit, unless you specifically opt in to allow “over-limit” transactions. If you opt in, the charge may go through, but you will incur over-limit fees (up to $35) and your credit score could be negatively impacted due to high credit utilization.
Can you overdraft with no money on your card?
No, you cannot overdraft a credit card when it has a zero or negative balance, because a credit card is a line of credit, not a bank account. A credit card is used to borrow money up to a set credit limit. If you have no available credit (meaning your current balance equals your limit), any attempted transaction will be declined unless you have opted into “over-limit” transactions. If you have opted in, going over the limit will result in fees and negatively impact your credit utilization ratio.
Can you overdraft a credit card at an ATM?
If you attempt a cash advance transaction at an ATM that would exceed your credit limit, the transaction will generally be declined, unless you have opted in to allow over-limit transactions. If you’ve opted in, the transaction will go through but will likely result in fees and a negative impact on your credit utilization ratio.
How can you ask for a credit limit increase?
You can contact your credit card provider via phone or their online portal to request an increase. They will likely review your credit history, which may result in a temporary, minor dip in your credit score due to a hard inquiry. The card issuer might also ask for your current total annual income, employment status, and monthly housing payment (rent or mortgage). It’s often recommended to have had the card for at least a few months and to be using it responsibly before making the request.
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