Can you use Credit Card beyond Credit Limit

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A credit card allows you to purchase items on credit up to a certain limit. Many of us feel that if our credit limit is reached, our card will be refused. Did you realise, though, that you may use your card above your credit limit?

Yes, credit card providers offer a ‘over limit’ service that allows you to use your card for an amount that exceeds your credit limit. There are a few things to consider before using this service. Remember that not managing your credit card responsibly might lead to a debt trap that is tough to escape.

What is Credit Limit?

Credit limit is the maximum amount you can spend using your credit card at any given time. Credit card limits are imposed to make sure that you can repay the money you borrow within a certain period of time without falling into debt problems.

The credit limit is determined on the basis of various factors including income, credit profile, credit worthiness etc. Normally, the credit card limit is set by the issuer at the time of issuing the card, but the limit can be revised periodically depending on the card holder’s repayment history, credit score, income, and so on. Some issuers allow the card holder to set a limit of their choice themselves within the overall limit set by the issuer. Normally, there are no charges for setting or changing this limit.

Who is eligible for ‘Over Limit’?

Credit purchase beyond the card limit is generally allowed for all credit card users. Basically, credit card issuers give you both options – to transact beyond the credit limit as well as decline the transaction when crossing the credit limit – you can hence opt in or opt out of ‘over limit’ transactions at the time of payment/transaction. However, using a credit card with the ‘over limit’ option is subject to terms and conditions.

What is the limit of the ‘Over Limit’ Facility?

Over-limit as functionality is provided for customer convenience and is expected to be utilised in exceptional scenarios. Banks and card issuers do not allow an infinite ‘over limit’. For instance, if your credit card limit is Rs 1 lakh, the bank/issuer may allow you to spend another Rs 10,000 (10 percent of the credit limit) but won’t allow a transaction of Rs 10 lakh to go through.

Currently, there is no standard rule regarding the limit on ‘over the limit’ spending on your credit card. This final limit varies from credit card to credit card and their normal spending limits offered to you. However, Yes Bank’s business head – credit cards,

Banks allow an over-limit transaction to go through but then apply the associated charges which would be a minimum payment (from Rs 300 to Rs 500) or 3 percent of the amount over the limit plus taxes and charges (if any), whichever is higher.

What are the Charges?

Charges on ‘over limit’ applied by several banks are:

  • HDFC Bank: 2.5 percent on the ‘over limit’ amount, subject to a minimum of Rs 500
  • State Bank of India: 2.5 percent of the over-limit amount or Rs 500, whichever is higher will be levied
  • Citibank: 2.5 percent of the amount (excluding fees, charges and taxes) over the credit limit, subject to a minimum of Rs 500
  • ICICI Bank: 2.5 percent of the amount that exceeds the limit/ the ‘over limit’ amount, subject to a minimum of Rs 300
  • Axis Bank: 3 percent on the ‘over limit’ amount, subject to a minimum of Rs 500

Will you get an alert when you exceed the Credit Limit?

Some banks will call you to check on your over-limit transaction to ensure that it is above board, and they will also explain the charges associated with this transaction. However, sometimes customer care personnel may not call you, generally if you are transacting within the permissible over-limit on your card limit (which is normally 10 percent as mentioned above). The process of informing you may vary from bank to bank.

Impact of Making Transactions over the Credit Limit

When you’re availing the over-limit facility, you not just end up paying a fee but it could also hurt your Credit Score. This is because you tend to exceed your Credit Utilisation Ratio (CUR) by over 30 percent. Moreover, it also negatively impacts your chances of availing loan against Credit Card at times of financial exigencies.

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Impact of making transaction over the Credit Limit

Along with paying a fee, using the ‘over limit’ facility can have a negative impact on your credit score. Going over your credit limit not only triggers over-limit penalty but also adversely impacts your credit score as you tend to exceed your Credit Utilisation Ratio (CUR) over 30 percent. Moreover, it also reduces your chances of availing loan against credit card at times of financial exigencies.

When can you use the ‘Over Limit’ facility?

You can use the ‘over limit’ facility anytime you cross the credit limit of your card in a billing cycle. However, exceeding the limit will affect your credit score. Hence, you must use such a facility only in the case of emergencies. A purchase related to wants/desire can be postponed to next month or when you have repaid the credit card bill completely. An ‘over limit’ transaction should be considered only for necessities or emergency purchases.                

What is Credit Card Refinancing?

Credit card refinancing is a type of debt consolidation that could simplify your life by allowing you to combine multiple credit card balances into one easy payment. A credit card refinancing loan may come with low, fixed interest rates that don’t change during the life of the loan. If you’re one of the many people who can’t pay more than the minimum monthly payment on high-interest rate credit cards, you could save thousands of dollars in interest. At Best Egg, we believe there’s a smarter way to manage credit card debt and get on the path to financial freedom with a credit card refinancing loan.

Things to remember

  • Credit card interest is charged even when a part of the bill is outstanding. Even if you pay the minimum amount due, the interest is still charged on the remaining unpaid amount.
  • When you have outstanding amount that is past due date, any new expenditure is charged the interest rate (typically 36-42%), from the day of expenditure to the date when you repay the dues. Credit card becomes a ultra high interest running loan at that point!
  • Credit card delays affect your credit score, making credit card or future loans costlier or even infeasible.