DEFINITION of 'Over-Limit Fee'

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 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 does not 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, it is unknown precisely if the act directly caused the decrease. What is known is that the law required creditors to allow consumers to opt out of paying over-limit fees. Opting out means not only that they will not pay over-limit fees, but also that they will not be able to spend beyond their credit limit, which limits 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.

How Over-Limit Fees Affect Consumers

When credit card issuers more regularly charged over-limit fees, it provided auxiliary form of revenue for the companies as consumers were allowed to overspend and incur these fees. Sometimes consumers would suffer these penalties on a recurring basis if they did not maintain close watch on their spending habits. This practice changed with the passage of the Credit CARD Act.

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

  1. Balance Chasing

    Balance chasing is the practice by some banks of reducing a customer’s ...
  2. Credit Card Balance

    Credit card balance is the amount of charges, or lack thereof, ...
  3. Credit Card Accountability, Responsibility ...

    The Credit Card Accountability, Responsibility, and Disclosure ...
  4. Secured Credit Card

    A secured credit card is a type of credit card that is backed ...
  5. Credit Card Funding

    Credit card funding is the use of a credit card account to provide ...
  6. Card Recovery Bulletin

    A card recovery bulletin is published by credit card issuers ...
Related Articles
  1. Personal Finance

    5 Signs You Need a New Credit Card

    High interest rates, hefty annual fees and poor customer service are among the indications that you have a bad credit card.
  2. Personal Finance

    Credit Cards For People With Bad Credit

    Yes, you can get a credit card and start repairing your credit history. But brace yourself for low credit limits, sky-high interest and staggering fees.
  3. Personal Finance

    Credit vs. Debit Cards: Which Is Better?

    Credit and debit cards may look identical, but they're not. Be strategic about which type of card you use.
  4. Personal Finance

    Credit Card or Cash: Which To Use?

    Credit cards are more convenient to use than cash, but they're not always the best choice. Here is why you should and shouldn't pay with a credit card.
  5. Personal Finance

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

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

    Forget Your Bank Account - Use Your Credit Card

    What if you used your credit card as a bank account? Believe it or not, this strange strategy could actually work.
  7. Personal Finance

    How Credit Cards Affect Your Credit Rating

    Credit cards indicate to lenders whether a potential borrower can service the debt he or she is requesting.
  8. Personal Finance

    Best Credit Cards For People With Poor Credit Scores

    There are still ways you can build credit with a credit card, even if you have bad credit.
  9. Personal Finance

    Which Credit Cards Are Best After Bankruptcy?

    Building back credit after bankruptcy generally starts with getting a secured credit card. Here's how to identify the best deals among the limited choices.
  10. Personal Finance

    Everything You Need To Know About Credit Card Rates

    Understanding credit card rates will help you choose the right credit card, and avoid any unpleasant surprises.
  1. How are available credit and credit limit different?

    Explore the difference between available credit and credit limit and the implications different account balances have on ... Read Answer >>
  2. Am I Responsible for Fraudulent Charges on My Credit Card?

    If your credit card is stolen in the US, federal law limits the liability of card holders to $50, regardless of the amount ... Read Answer >>
Trading Center