Credit Cards and You: Service Fees on Credit Card Transactions

Over-the-limit fees

Your credit limit indicates the maximum amount that you are allowed to spend on your credit card. The credit card issuer determines your credit limit based on the type of card you have (standard, gold or platinum), your credit history and your income. Your credit card limit also appears on your monthly credit card statement.

It is up to your credit card issuer to decide whether to allow any over-the-limit transactions you may make. The card issuer usually decides this on a case-by-case basis. If you do go over your credit limit, you might have to pay a fee, which can vary from one card issuer to another. The card issuer must disclose these fees to you, in writing, when you first receive the card. This information is contained in the credit card agreement the issuer gives you. However, you should know that the card issuer will not inform you if you are about to go over your credit limit when you make a transaction. It is your responsibility to pay attention to your balance and make sure you don't go over your credit limit.

If you think you're going to go over your credit limit — for example, if you're planning to make a major purchase — and you don't expect to have any problems paying your credit card bill on time, it might be a good idea for you to ask your credit card issuer to increase your credit limit, so you won't have to pay any over-the-limit fees.

If you have trouble limiting your spending on your credit card, you can ask your credit card issuer to put a stop to any transactions that exceed your credit limit, to avoid paying over-the-limit fees. Some credit card issuers will do this, if you ask them, but others may not offer this service. Even if they do, some types of transactions may still be processed, over your approved limit. This is because some sales – usually of small value items – go through without the issuer being notified at the moment of sale.

When you should not be charged an over-the-limit fee: Temporary holds

A temporary hold on your credit card is what merchants sometimes do to make sure you are able to pay for goods or services you get before you pay for them. For example, when Steve goes to a gas station and uses his credit card to pay at the pump the merchant places a temporary hold of $100 to make sure he has enough credit to pay for the gas. Steve buys $20 of gas, leaving $80 of the temporary hold unused. After a certain length of time, the unused portion of the temporary hold amount will be released.

By law, you should not have to pay over-the-limit fees due to temporary holds on your credit card that put you over your credit limit. For example, Steve has $90 left in his credit limit, and when he uses his card to buy $20 of gas, a $100 temporary hold is placed on his card; he should not be charged an over-the-limit fee in this case.

This does not apply if Steve goes over his credit limit without the temporary hold. For example, Steve has $10 left in his credit limit, and uses his credit card to buy $20 of gas, a $100 temporary hold would be placed on his card. In this case Steve would be charged an over-the-limit fee because he would have gone over his credit limit by $10 even without the temporary hold.