20 Jan 2015

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.

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.

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