Will Over-the-Limit Affect My Credit History?

A credit limit is not arbitrary. You qualify for a certain amount of credit based on factors like your income and credit score; as such, you need to respect the amount of your credit limit. According to Experian, if you're habitually going over the limit (OTL), not only will you be slapped with hefty fees each time you spend more than you have, but your credit limit will be decreased and your credit score will be damaged, which has far-reaching impacts beyond OTL fees.

Rationale

Your credit score is a reflection of your credit history and helps lenders determine how credit-worthy you are (and how favorable your rates will be). You might get a free pass once or twice, but if you exceed your limit regularly, Experian reports, it's a red flag to would-be creditors about how you manage your credit. You may be considered a lending risk, and your lower credit score (the lower the score, the higher the credit risk) will reflect that.

Amounts Owed

Payment history is the biggest factor behind your credit score, with data related to payments making up 35 percent of your total score, according to Fair Isaac Corp. Even if you pay your credit card bill on time every month, a history of going over your credit limit can still have a negative impact. This is because of the second biggest factor behind your score: amounts owed, which contributes to 30 percent of the total score. Your total debt load is just one aspect of amounts owed.

Debt-to-Credit Ratio

Aside from total debt, creditors also look at the amount of money you owe versus the amount of credit you've been approved for, according to Evolution Finance's CardHub Education Center. Like credit scores, the lower your proportion of debt to credit, the better. If you have gone over the limit, you essentially have exhausted your credit by over-spending. Generally speaking, you should keep the ratio of debt-to-credit under 60 percent.

Solutions

You can avoid over-the-limit fees (and their impact on your credit) by paying at least a portion of the balance so you're not over the limit by the time the billing cycle ends, according to CardHub. If you don't pay it down by the time the billing cycle ends, it will reflect poorly on your debt-to-credit ratio; this is even more true if you have fewer cards and less credit in general. Even if you pay down the balance by the close of the cycle, you need to explore your spending habits, according to Experian. Stop charging and start making more than the minimum monthly payments.