Can You Overdraft a Credit Card? (2024)

An overdraft means that you’ve spent more money than the available balance in your bank account. When you exceed your credit card limit, it’s called an over-limit transaction or going over-the-limit.

What is a bank overdraft?

An overdraft is most often associated with a bank or credit union checking account or debit card. If you write a check for more than you have in the account, a bank will normally return the check for insufficient funds (commonly called bouncing a check).

If you have overdraft services and your account balance dips below zero, the bank can extend temporary credit for the shortfall and pay the check or debit card charge. An overdraft transaction usually incurs a fee (overdraft fees average around $35 and could be charged each day you are overdrawn according to the FDIC).

What happens when you go over your credit card limit?

In contrast to a bank overdraft, with credit cards you're spending credit, not cash. Your card issuer specifies a credit limit and will decline transactions that would put you over that limit.

Some of the best credit cards will let you go over your credit limit if you opt-in and agree to applicable fees (like an over-the-limit fee). In fact, cards like Discover may allow you to go over your limit without paying an over-limit fee. It’s important to note that while you may be able to go over your limit, the best practice is to avoid doing so. It may be a signal to creditors that you are having difficulty managing your finances.

Look closely at the terms and conditions of your card—some cards may allow certain over-the-limit transactions based on your history with them or the amount of the transaction. Be aware that in these cases it may be difficult to know how much you’re allowed to spend over your limit.

If you opt in to pay over-the-limit charges, your card issuer may have strict policies about these transactions. As an example, they may require you to pay back the over-limit amount immediately. They may also decline further transactions on a card that’s at or over the credit limit.

It’s also good to know that even if you initially agreed to over-the-limit transactions and fees, you may always opt out later. When you opt out, it means the card issuer will go back to declining new transactions that would put you over your limit.

How exceeding your credit limit affects your credit score

While fees are a major downside of over-the-limit transactions, there are other aspects to consider. One consequence is the impact on your credit score. Going over your credit limit or maxing out your card may raise your credit utilization to a point that impacts your credit.

Credit utilization is the percentage of credit you’re currently using out of the total credit available to you. For instance, if your credit limit is $1,000 and your card balance is $300, you’re using 30% of your available credit for that card. If you use $1,000 or more on that same card, then your credit utilization is 100% or more.

Credit utilization accounts for 30% of your total credit score. So, exceeding your credit limit is likely to negatively impact your credit score.

Alternatives to going over a credit card limit

If you find yourself relying on your credit card’s over-limit feature, it may be time to consider alternatives. There may be other ways to access the credit you need.