“Understanding the Impact of Going Over Your Credit Limit”

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Understanding the Impact of Exceeding Your Credit Limit

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding your credit. For more information, see our Editorial Policy.

Does Going Over Your Credit Limit Affect Your Credit Score?

Exceeding your credit card’s borrowing limit can negatively impact your credit scores and result in additional fees. When you surpass your card’s limit, your credit utilization rate—the percentage of your borrowing limit represented by your outstanding balance—exceeds 100%. This high utilization rate can significantly lower your credit score.

Credit utilization is a crucial factor in credit scoring. A utilization rate above 30% can start to negatively affect your score, with the impact becoming more pronounced as the rate increases. Individuals with the highest credit scores typically maintain utilization rates below 10%.

What Happens When You Go Over Your Credit Limit?

If you attempt a purchase that exceeds your credit card’s limit, several outcomes are possible:

• Payment is declined: Unless you have agreed to allow overdrafts (and related fees), the payment will be declined. Federal law prohibits charging fees for declined transactions.
• Overdraft fee: If you have authorized overdrafts and the transaction is approved, you will be charged a fee. The fee can be up to $25 the first time and up to $35 for subsequent instances within six months. However, the fee cannot exceed the amount by which you went over your limit.

How to Avoid Going Over Your Credit Limit

To prevent exceeding your credit limit, consider the following strategies:

• Refuse overdrafts: When applying for a card, opt out of overdraft approval.
• Monitor your account: Set up alerts to notify you when you are nearing your limit.
• Keep a high-limit card for emergencies: Use a card with a high limit for emergencies and set up autopay for small recurring expenses to keep it active.

What to Do if You Go Over Your Credit Limit

If you exceed your credit limit, take these steps to mitigate the impact:

• Make a payment immediately: Reduce your balance below the limit as soon as possible to avoid additional fees.
• Request a higher limit: If your credit score is decent, ask for a higher limit to prevent future overdrafts.
• Stop using the card: Pause any recurring expenses on the card and focus on paying down the balance.
• Consolidate your debt: Consider a debt consolidation loan or balance transfer credit card to manage high balances and reduce interest charges.
• Seek credit counseling: If you have multiple cards near their limits, consult a certified nonprofit credit counseling agency for a debt management plan.

The Bottom Line

Exceeding your credit card’s borrowing limit can result in costly fees and lower credit scores. To avoid this, opt out of overdraft approval and keep your balances below 30% of your borrowing limits. Monitoring your credit score and paying down high balances can help improve your credit health.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to assist you with the best mortgage solutions.

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