Over-Limit Fee

An over-limit fee is a penalty charged by a credit card company if a credit card user exceeds the card’s credit limit. Over-limit fees are typically $25 for the first over-limit charge and $35 if you go over the limit a second time within the next six months, though credit card issuers are free to determine their own fees as long as they are reasonable in relation to the cardholder’s over-limit activity.

Some card issuers do not charge over-limit fees, and those that do must allow cardholders to opt out of paying them. If a cardholder opts out of over-limit fees, the card will be declined if it does not have enough available credit to complete a purchase, unless the card issuer allows over-limit charges with no over-limit fee.

Over-limit fees have become less common since the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (also known as the CARD Act), although it's not known whether the act is directly responsible for that decrease. However, the law does require creditors to allow consumers to opt out of paying over-limit fees. Opting out means not only that cardholders will not pay over-limit fees but also that they will not be able to spend beyond their credit limit, which restricts how much debt they can get into – at least with a particular card. If they opt in, the over-limit fee cannot be higher than the amount by which they exceed their credit limit.

Before the passage of the CARD Act, when credit card issuers charged over-limit fees more regularly, the practice provided an auxiliary form of revenue for the companies. Sometimes consumers would suffer these penalties on a recurring basis if they did not maintain close watch on their spending habits. Thanks to the CARD Act, this happens less frequently now.

Here is an example of how the over-limit fee works: Let's say a consumer has opted in to over-limit fees, has a credit limit of $5,000 and a current balance of $4,980, leaving $20 in available credit. This consumer then uses the card to buy dinner, which costs $42 and increases the balance to $5,022. The limit has been breached by $22, so the credit card company can charge, at most, an over-limit fee of $22. If dinner costs $102, the balance will increase to $5,082, exceeding the credit limit by $82. If the consumer has not had an over-limit charge in the previous six months, the credit card issuer will probably charge a $25 over-limit fee. If the cardholder has already gone over the limit at least once in the past six months, the fee will probably be $35.