Can You Overdraft a Credit Card?

You may be familiar with the term “overdraft” as it relates to your checking or savings account. It happens when you withdraw more money than you have available, and you’re left with a negative account balance. But when it comes to credit cards, the word “overdraft” doesn’t exactly apply. Instead, when you spend more than the amount available on your credit card, it’s simply called “going over your credit card limit.”

What happens if you go over your credit limit?

Most credit card companies do not approve transactions that put cardholders over the limit. Here’s what happens when you go over your credit card limit:

• Your transaction could be declined. If you attempt to make a purchase that exceeds the available balance on your credit card (and you haven’t consented to allow over-the-limit charges), your card will most likely be declined. If the transaction is allowed, and you have not agreed to over-the-limit charges, you cannot be charged a fee for going over your credit limit.¹

• You could incur over-the-limit fees. If you’ve given your credit card company permission to approve transactions that exceed your credit limit, you will likely face fees whenever that happens. And remember, if your balance remains over the limit in your next billing cycle, you could be charged that fee again. These fees can drive up your balance and make it much harder to pay off.

• It could impact your credit score. The amount of credit you use compared to the total credit you have available can impact your credit score in big ways. It’s called credit utilization, and it is a factor used by top credit scoring models like FICO® and VantageScore® in calculating your credit score. So when you go over your credit limit, it raises your credit utilization ratio, which could hurt your credit score.

How to avoid going over your credit card limit

Putting healthy financial habits in place now can have a lasting impact on your future. Here are a few steps you can take to stay within your credit limit and strengthen your financial well-being, including:

• Keep track of your spending and credit card balance. The more aware you are of the amount you owe on your credit card and how much available credit remains, the less likely you are to spend over your limit.

• Pay more than the minimum monthly payment. This helps you pay down your balances faster and pay less in interest, too.

• Set balance alerts. Set up text or email reminders to let you know when your balance reaches a certain amount.

• Opt out of over-the-limit coverage. Contact your card issuer to let them know you no longer consent to over-the-limit charges.

Use your credit wisely

Can you overdraft a credit card? Technically, no. But you can go over your credit card limit, which can have a negative impact on your financial health. To avoid the fees and potential hit to your credit score, know your credit limit and keep a close eye on your spending to maintain the strongest credit health possible.