DEFINITION of 'Over-Limit Fee'

A fee 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 for subsequent over-limit charges, 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.

BREAKING DOWN 'Over-Limit Fee'

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 doesn’t have enough available credit to complete the 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 (Credit CARD Act). However, while the decrease in over-limit fees is correlated with the act’s passage, we don’t know if the act directly caused the decrease. What we do know is that the law required creditors to allow consumers to opt out of paying over-limit fees. Opting out not only means you won’t pay over-limit fees, it also means you won’t be able to spend beyond your credit limit, which limits how much debt you can get into, at least with a particular card. If you opt in, the over-limit fee can’t be higher than the amount by which you exceed your credit limit.

Suppose you’ve opted in to over-limit fees and you have a credit limit of $5,000. Your current balance is $4,980, leaving $20 in available credit. You use your card to buy dinner, which costs $42 and increases your balance to $5,022. You’ve gone over the limit by $22; the most your credit card company can charge you in over-limit fees is $22. What if dinner cost $102? In this case, your balance would increase to $5,082, and you would exceed your credit limit by $82. If you haven’t had an over-limit charge in the last six months, your credit card issuer will probably charge you a $25 over-limit fee. If you have already gone over the limit at least once in the last six months, the fee will probably be $35.

RELATED TERMS
  1. Card Recovery Bulletin

    A paper listing of lost, stolen, past-due, over-limit, counterfeit ...
  2. Balance Chasing

    The gradual lowering of a consumer’s credit limit by a credit ...
  3. Fee Harvesting Card

    Credit cards targeted at consumers with poor credit scores that ...
  4. Zero-Floor Limit

    A retail authorization system in which all of a merchant's credit ...
  5. Opt Out Right

    A consumer’s authority under the 2009 Credit CARD Act to disagree ...
  6. Upfront Pricing

    The interest rates and fees stated in a credit card agreement ...
Related Articles
  1. Personal Finance

    Terrible Credit Score? Try These Credit Cards

    When your credit is less than stellar you have fewer choices. But some are still better than others. Here's our read on which cards to get.
  2. Personal Finance

    Take Control Of Your Credit Cards

    The plastic in your wallet doesn't have to hurt your finances. Learn how to manage it responsibly.
  3. Personal Finance

    Small Business: Minimize Your Credit Card Fees

    Accepting credit cards is a must these days, but small business owners can take steps to minimize profit-eating credit card fees.
  4. Personal Finance

    Credit Card or Cash?

    Credit cards are convenient to use, but not always the best choice. Here are 5 times you shouldn't pay with a credit card – and 5 times you should.
  5. Personal Finance

    Credit vs. Debit Cards: Which Is Better?

    Be strategic about the card you choose! Learn more about which is better for you: credit cards or debit cards.
  6. Personal Finance

    Credit, Debit and Charge: Sizing Up The Cards in Your Wallet

    Not all plastic is equal! Learn the difference between the three kinds, and how each can affect your finances.
  7. Personal Finance

    Understanding Credit Cards

    Credit cards are a type of unsecured personal loan between the credit card issuer and the credit card holder.
RELATED FAQS
  1. How do secured credit cards help me build my credit score?

    Find out how secured credit cards function and why they can be very useful for those looking to build or rebuild their credit ... Read Answer >>
Trading Center