Understanding Your Credit Card Overlimit Fee

An overlimit fee is a type of credit card fee that issuers charge if your account balance exceeds the card's credit limit.

While this fee sometimes catches people by surprise, it's relatively easy to avoid, especially if you check your credit card balance often. If you don't, though, this fee can be a sort of wake-up call for your finances.

In this article, we'll explain how these fees work, what to do if you see one on your account, and how to avoid them.

What is an overlimit fee?

An overlimit fee is a fee charged by credit card issuers when you exceed your credit limit.

However, credit card issuers can't charge an overlimit fee if your account is on hold. For example, if your credit limit is $1,000 and your current balance is $970, but you make a $20 fuel purchase, the station may place a $50 hold on it. This could put you over your credit limit.

According to a 2009 banking act, you can't be charged a fee in this situation.

Keep in mind, though, that if your purchases push your balance over your credit limit, an overlimit fee will most likely apply.

The same legislation states that credit card issuers may increase your credit limit only with your express permission. If you do decide to increase your credit limit, consider whether you can easily pay off a higher credit card balance.

How much is an overlimit fee?

The exact overlimit fee can vary by card issuer, but all 5 Canadian big banks charge $29 if you go over your card's credit limit.

There may be more flexibility in what fintech companies and credit unions charge, so check your credit card's terms and conditions.

How overlimit fees work

Lending money to credit cardholders is risky for banks and other financial institutions, which is why they place credit limits on the cards they issue. It's logical that they'd need to charge overlimit fees to discourage cardholders from going beyond these limits.

In general, credit card fees are just a small way of recouping some of the money they've lent you, and overlimit fees are also meant to discourage you from repeatedly going over your credit limit.

Consequences of going over your credit limit

Overlimit fees aren't huge, but exceeding your credit limit can have a big effect on your personal finances (and not in a good way). Your credit score may be affected. Or you may lose rewards points, have to make higher monthly card payments, or even lose your credit card entirely.

If you're trying to use the card and the purchase would put you over your limit, the merchant may decline the transaction. If the purchase goes through and you do exceed your limit, your credit score can drop significantly.

That's because your credit utilization ratio increases – this is the amount of available credit that you're using. If you're using all your credit and then some, it signals to lenders that you're struggling to repay your debt.

If you repeatedly go over your credit limit, the consequences become more severe. The bank might require you to pay the overlimit fee immediately, and you could lose your credit card rewards. Going forward, you may be asked to make higher minimum payments and face penalty interest rates.

In extreme cases, the issuer could freeze, cancel, or close your credit card account.

What to do if you're charged an overlimit fee

If you log in to your credit card account and spot an overlimit fee, there are 3 things you should do:

1. Check your recent transactions: Review the charges since your last statement and look for errors. Were you charged multiple times for a single purchase? Are there transactions you don't recognize? Is the purchase amount incorrect? If so, contact your credit card issuer immediately to correct the mistakes that could have contributed to going over your limit.
2. Make a payment as soon as possible: If possible, pay enough to bring your balance back below the card's credit limit. If that's more than you can pay, be sure to make the minimum credit card payment, so you're not hit with a late fee in addition to an overlimit fee.
3. Contact your card issuer and ask them to waive the overlimit fee: If you've never had this happen and you've made a payment, it doesn't hurt to call and ask your issuer to waive the fee.

How to avoid an overlimit fee

The best way to avoid an overlimit fee is to stay within your credit limit from the start. While this can be difficult, there are several strategies that can help with staying within your limit:

• Monitor your spending and stop charging new purchases if you're approaching your credit limit.
• Check your account balance frequently by logging in online or in the card's app.
• Make more frequent payments to prevent your balance from growing.
• Apply for a credit limit increase if you know you need access to more funds.
• Reduce your spending until you can pay down your credit card balance.
• Set up autopayments if your balance grows because you forget to make payments on time.
• Make a budget with a goal of paying off your credit card so you don't have to worry about approaching the card's limit.

FAQ

What is an overlimit fee on a credit card?

An overlimit fee is a fee charged by your credit card issuer when you exceed your credit card's available limit. Most bank issuers charge $29 for going over your limit, but credit union cards may charge a slightly lower amount.

Why did I get charged an overlimit fee?

If you made a large purchase or several purchases that exceeded your card's credit limit, you'll likely see an overlimit fee on your credit card statement. This is charged in addition to any other fees, such as interest and late fees.

Does overlimit affect your credit score?

The overlimit fee itself doesn't harm your credit score, but going over your credit limit does. The overage causes your credit utilization jump to 100%+. Most lenders and financial institutions want to see you using 30% or less of your available credit, so over 100% is a financial red flag.

Can I waive the overlimit fee?

It is possible to get your credit card issuer to waive the fee, especially if you've made a payment and brought your balance below the card's limit. It helps if you've never exceeded your limit before, but contacting them to ask is worth trying. The worst they can say is no.

Can I negotiate the over limit fee?

There's no guarantee that you'll be able to negotiate the overlimit fee. It's worth calling your card issuer's customer service to ask. Explain why you went over your limit and outline the steps you're taking to prevent it from happening again. Some issuers will waive the fee entirely, so it costs nothing to ask.