Credit card over-limit fees, charged for maxing out your account, once cost consumers billions of dollars a year. But they barely exist anymore, and one financial regulator even calls them “essentially extinct.”
But that doesn’t mean exceeding your credit limit isn’t a problem. It invites plenty of trouble beyond the embarrassment of a clerk handing you back your card at the checkout with a disapproving or sympathetic look. Potential effects can include punitive interest rates, a hit to your credit score, lost rewards or even cancellation of your account.
Here’s what you should know about over-limit fees and what happens when you bang into your credit card’s ceiling.
cCredit card issuers used to be able to charge you automatically for going over your limit. If you exceeded your credit line, the issuer might still cover the charge, but you’d get hit with a fee. That changed with the federal Credit Card Act of 2009. Cardholders now must opt in to over-limit coverage and the fees that come with it.
Some issuers still market the opt-in as a way to avoid being shamed when a merchant declines your card for blowing past your spending ceiling, or as an emergency credit line. But many card issuers gave up and eliminated over-limit fees. American Express, for one, hasn’t charged them since 2009.
How rare are over-limit fees now? The Consumer Financial Protection Bureau calls them “essentially extinct.”
Just 0.0008% of active accounts through mid-2015 were assessed an over-limit fee, based on the latest quarterly averages released by the CFPB. That’s fewer than 1 in every 100,000 accounts. The CFPB estimates, conservatively, that the decline of over-limit fees saved consumers $9 billion from 2011 to 2014, compared with what they would have paid based on 2008 levels of over-limit charges.
Credit card over-limit fees are mostly gone, but that doesn’t mean banks let you exceed your spending cap without consequences. It just means they deal with it in other ways. For example, your card issuer could:
If you’re one of the rare birds who opt in to over-limit fees, you generally can be charged up to $25 the first time you exceed your credit limit. That rises to $35 for a second infraction within six months. The fee can’t be larger than the amount by which you exceeded your credit limit.
Exceeding your limit can become a problem on your credit reports, too.
Updated March 2, 2017.
The article Why Credit Card Over-Limit Fees Are ‘Essentially Extinct’ originally appeared on NerdWallet.