Can you overdraft a credit card?

Young man sitting on sofa at home with laptop and holding a credit cardImage: Young man sitting on sofa at home with laptop and holding a credit card

In a Nutshell

You can’t overdraft a credit card unless you’ve specifically opted into over-the-limit coverage with your card issuer. But spending more than your limit on a credit card isn’t typically called overdrafting — that’s a term you’d use with your bank account. Usually, exceeding the limit on your credit card is simply known as “going over the limit.”
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There’s really no such thing as overdrafting a credit card.

This is because credit card issuers shouldn’t approve a card transaction that puts you over your limit unless you’ve specifically consented to over-the-limit charges.

You also wouldn’t usually use the term “overdraft” when it comes to spending more on your credit card than what you have in available credit; with credit cards, this is usually known as “going over your credit limit.” Overdrafting is the term you’d use if you spend more money than what’s available in your checking account.

But it’s still possible to go over your credit card limit if you’ve opted into some sort of over-the-limit program with your card issuer. Here’s what you should know.

What happens if I try to overdraft my credit card?

Declined transactions

In most cases, if a purchase is going to push you over your credit limit, your card transaction will be declined and you won’t have any additional fees or balance overages to deal with.

This is because of the Credit CARD Act of 2009. This law says card issuers can’t charge you any over-the-limit fees unless you’ve specifically consented to transactions that will take you over your limit in advance.

Overlimit fees

Your card issuer may offer you the ability to go over your credit limit with programs known as over-the-limit coverage or protection plans. If you opt into this kind of program, your card issuer can authorize card transactions that exceed your limit.

But these programs come with the potential for extra fees, so make sure you read the fine print. The first time you go over your limit, you can usually be charged a fee of up to $25. After that, the fee can go up to $35 if you go over your limit a second time within six months from the last time you exceeded your credit limit — although it won’t be more than the amount you spent over your limit.

This fee may not be a one-time thing, either. If your balance remains above your limit in the next billing cycle, you could be charged the over-the-limit fee again. And if you can’t pay the minimum payment, you could be hit with late fees. You may also face increased interest rates with a penalty APR if you go over your limit.

Potential credit impact

Another potential consequence of going over your credit card limit is a drop in your credit scores. This is because your credit scores factor in your credit utilization ratio, or how much of your available credit you’re using. Many experts recommend keeping your overall credit card utilization below 30% of your balance.

In other words, if you have $10,000 in available credit but you’ve borrowed $10,500, you could be seen as a credit risk because you’ve got a higher utilization ratio.

What should I do if I go over my credit card limit?

If you’ve opted into over-the-limit coverage, you might already see the impact of going over your card limit with additional fees on your statement.

Here’s what you can do in case you’ve spent over your credit limit.

Opt out of over-the-limit coverage

The first thing you can to do is turn off the over-the-limit coverage. You can request to opt out of the coverage, but it may require sending a written request. Let your credit card issuer know that you don’t authorize any additional transactions that will exceed your available credit.

Pay down the overage

Pay down your card balance until it’s below your credit limit again. This way, you won’t be continually hit with fees each billing cycle that your account balance remains above the limit.

Ask to increase your credit limit

If you’re concerned about going over the limit on your credit card, one longer-term option is to request a credit limit increase.

Some issuers will increase your credit card limit automatically from time to time, and you can also often request a credit limit increase with a quick phone call to your credit card issuer. Sometimes you can even request a credit limit increase online.

Just remember, if you need to request a credit limit increase — and are approved — make sure that you won’t feel tempted to meet that limit by spending more just because it’s there.

Stop using the card

If you’ve gone over your credit limit as a result of deeper financial issues, it may be a good idea to stop using the card and focus on paying down the debt. A budget can help you feel more in control of your finances and get a handle on your debts. Here’s how to make a budget.

Consider closing your account

If keeping the card open and trying to not to use it doesn’t work for you, you might want to consider closing your credit card account altogether. You’d still be responsible for paying your monthly minimum payments on time and in full and as agreed — and you can still be charged interest on the amount you owe — but you won’t be able to put new charges on the card.

The upside is that you’ll stop your balance from growing with new purchases. The downside is that closing a credit card could increase your credit utilization ratio, decrease your age of credit history and negatively impact your credit. But it might be worth it to take the hit if you’re battling unhealthy spending habits with your card.

Bottom line

If you’ve opted into a program with your card issuer that allows you to go over the limit with your credit card, it’s similar to overdrawing your bank account. With a credit card, you can be charged over-the-limit fees — and with your bank account, a negative balance means you can be charged overdraft fees.

If you do find yourself going over the limit and facing these fees, act quickly so you don’t end up owing more on your credit card than what you can comfortably afford to pay off.

About the author: Aja McClanahan is a Chicago-based writer and blogger who covers topics on personal finance and entrepreneurship. She holds a bachelor’s degree in economics and Spanish from the University of Illinois at Urbana-Champai… Read more.