How badly does going over credit limit affect credit score?

How Badly Does Going Over Credit Limit Affect Credit Score?

Exceeding your credit limit can have severe consequences for your credit score. Here’s how it impacts your creditworthiness:

1. Credit Utilization

A large part of your credit score is based on your credit utilization ratio, which measures the amount of available credit you’re using. Going over your credit limit inflates this ratio, indicating that you’re heavily reliant on credit and may be overextending yourself financially. As a result, your credit score will likely decrease.

2. Negative Mark on Credit Report

When you exceed your credit limit, the creditor will report it to the credit bureaus. This negative mark on your credit report can remain for several years and lower your score. Even if you pay off the debt and stay within the limit in the future, the mark can still linger, affecting your ability to qualify for favorable credit terms.

3. Transaction Denials

Exceeding your credit limit can also lead to transaction denials. If you attempt to make a purchase that exceeds your available balance, the transaction may be declined. This can be embarrassing and inconvenient, especially if you’re relying on your credit card to make essential purchases.

4. Reduced Credit Score Range

Going over your credit limit can shrink the potential range of your credit score. While a good credit score typically falls between 670 and 850, an excess credit limit violation can push your score below 670, making it more difficult to qualify for loans and credit cards with favorable interest rates.

5. Difficulty Rebuilding Credit

Once you exceed your credit limit, rebuilding your credit can be challenging. The negative mark will remain on your report for several years, and you’ll need to consistently make on-time payments and keep your credit utilization low to offset its impact.

How to Avoid Going Over Credit Limit

To prevent the negative consequences of exceeding your credit limit, follow these tips:

• Set up payment reminders to avoid missed payments.
• Pay off your balance in full each month, if possible.
• Keep track of your expenses to avoid overspending.
• Request a higher credit limit if necessary, but only use the additional credit wisely.
• Monitor your credit report regularly to track your progress and identify any potential issues.

By following these guidelines, you can effectively manage your credit and maintain a healthy credit score.