You can’t overdraft a credit card. The term “overdraft” actually applies more to bank accounts. Credit card issuers tend to use “over limit,” since you’re spending more than your credit limit. Whatever you call it, most credit cards don’t allow the practice. So if you try to exceed your credit limit, your transaction will just be declined. And even if your card doesn’t forbid it, you still have to opt-in to be able to spend more than your limit. This rule was put into place after the Great Recession to help curb the excessive fees that many cardholders were previously charged.
Keep in mind, though, that if you “overdraft” a credit card, it will come with some pretty undesirable consequences. You can look forward to afee equal to the amount by which you went over limit. You’ll also face an increased minimum payment and likely higher interest rates on future purchases. Plus, your credit utilization will take a huge hit.
Here’s what you should know about credit card overdrafts:
- You’ll need to ask your issuer if they allow over-limit purchases. If they do, you can ask them to opt you in, which will allow you to exceed your credit limit. If you don’t opt-in, you can’t be charged an over-limit fee.
- Even if your issuer lets you “overdraft,” it’s still up to them whether to approve any transactions you make over your limit.
- “Overdrafting” your credit card usually will result in an over-limit fee, which legally cannot be larger than the amount by which you went over the limit.
- You can expect your minimum payment for the next month to increase by the amount you went over your limit. So if your minimum payment would normally be $25 and you went $50 over your limit, you’ll need to pay a minimum of $75 (or your full balance if it’s less than that).
- Your issuer may impose a penalty APR if you spend more than your limit. They are required by law to inform you of any APR increase 45 days in advance. After that, your rate could never go back; issuers are required to get rid of penalty APRs on late balances when a customer pays on time for 6 months, but there’s no such rule for new purchase APRs. They still have to evaluate your account every 6 months but have the power to decide whether to bring your rate back down.
- Exceeding your credit limit means your credit utilization will be over 100%. That’s bad news for your credit score.
It’s not a good idea to “overdraft” your card. If you really need to spend more than your credit limit, there are a few things you can do. First, call your issuer and ask if you’re eligible for a higher credit limit. If you’re not, you could apply for another credit card. If both of those methods fail, you might need to use a debit card instead (if you have the funds available). The fees and credit score damage involved with going over your credit card’s limit definitely aren’t worth it.