A credit card is a handy tool to pay for daily expenses as well as big-ticket purchases. All credit cards come with a pre-assigned credit limit. This limit is assigned during card purchase and can range anywhere from a few thousand rupees to tens of lakhs.
Have you ever wondered what happens if you go beyond the maximum limit on your card? Can you purchase an expensive item beyond your credit limit? Will you be able to spend or will your purchase be declined?
The credit experts at CreditMantri explain what happens when you go over the credit limit on your card. Additionally, we also highlight the fees you have to pay for exceeding the limit and explore other alternatives you can use when you run short of money.
First things first,
What is a credit limit on a credit card?
The credit limit is the maximum amount that you can spend on your card. For example, if your card has a credit limit of Rs. 50,000, then you can spend only up to Rs. 50,000 at a given time. Once you pay the pending bill on your card, the exhausted credit limit will be released, and you can use it for other spends.
The credit limit sanctioned varies from individual to individual. Some of the critical factors that determine your available credit limit include:
- Credit score, credit history and credit profile of the cardholder
- Income and other debts of the cardholder, etc.
Generally, the credit limit is set during the time of card issue. However, cardholders can opt to increase the credit limit by providing proof of increased income, stellar credit reports, etc.
Can I go over the “credit limit” on my card?
It depends. Generally, most card issuers allow “over the limit” purchases for all cardholders. This comes in handy during an emergency or to purchase a big-ticket item. For example, if your card comes with a limit of Rs. 80,000 and you want to buy the latest iPhone costing Rs. 85,000 you can go “over the limit” to complete the purchase.
At the time of purchase, you can opt-in for over the limit transactions. However, if you do not wish to go over the limit, you can decline your card’s transaction and use an alternative method to pay for the purchase. However, note that going over the limit on your card is subject to the card issuer’s terms and conditions.
What happens when I go over the credit limit on my card?
Here are the possible scenarios:
- You may receive an alert/notification/call from the credit card company, reminding you that you’re going over the limit. Generally, most banks do not send this notification, if the transaction value is within the prescribed limit (10% over the credit limit on the card).
- Alternatively, some credit card companies outright decline your transaction if it goes over the limit.
What exactly happens, depends on the type of card, your credit history and relationship with the bank.
Is “over the limit” facility available on all credit cards?
No. It depends on the type of credit card you hold, your credit profile and your spending patterns. Generally, most card issuers offer “over the limit” facility to customers to help them meet emergencies. However, you need to remember that the “over the limit” offered depends on the card’s actual limit.
For example, if your credit card has a limit of Rs. 50,000 then you may be able to go over the limit up to Rs. 55,000 (10% of the available credit limit). You cannot expect to use your card to purchase items worth Rs. 2 lakhs, as this won’t be available.
The unwritten rule here is that most credit card companies allow cardholders to go 10% over their credit limit to meet emergencies.
Are there any charges for going “over the limit” on my credit card?
Again, it depends on your credit profile, the card type and your previous payment history. Generally, most banks charge an “over the limit” charges. This varies from bank to bank.
Over the limit charges at popular banks:
|Credit Card Issuing Bank||Over the Limit Fees|
|HDFC Bank||2.5% of the “over-limit” amount or a flat fee of Rs. 500, whichever is higher|
|State Bank of India||2.5% of the “over-limit” amount or a flat fee of Rs. 500, whichever is higher|
|ICICI Bank||2.5% of the “over-limit” amount or a flat fee of Rs. 300, whichever is higher|
|Citibank||2.5% of the “over-limit” amount or a flat fee of Rs. 500, whichever is higher + fees and other taxes|
|Axis Bank||3% of the “over-limit” amount or a flat fee of Rs. 500, whichever is higher|
*Bank can change the charges listed here as per their discretion. To know the exact “over the limit” fees on your card, get in touch with your bank. You can also find the fees listed in the brochure provided along with your credit card.
Generally, most banks are likely to waive the charges for “over the limit,” if you have a regular on-time payment history and a good credit profile.
Does going over the limit impact my credit score?
Yes. Frequently crossing the limit available on your card has a good chance of bringing down your credit score. Why? It’s because 30% of your credit score is dependent on the credit utilisation ratio. This is the ratio that determines the available credit to your overall debts. When you exceed the credit limit, your overall debt increases, increasing your debt utilisation ratio.
As the debt utilisation ratio goes higher, your credit score drops. With that said, going over the limit once in a while and repaying the credit card on time (or even before the due date) will not hurt your credit score immediately.
Does going over the credit limit impact my card interest rates?
Exceeding your credit limit can hurt you in several ways. Here are some of the possible scenarios:
- If you frequently max out your credit limit or go beyond it, then the card issuer may increase the interest rates.
- Overstepping your credit limit frequently can pull down your credit score. This makes it challenging to secure loans/credit cards at the best possible rates in the future.
- If you have multiple credit cards, then a drop in your credit score can cause other card issuers to raise your interests as well.
- It becomes challenging to get credit cards with high credit limits in the future.
Tips to Avoid going “over the limit” on your Card
- Remember that going over the limit can affect you in several ways: causes your credit scores to drop, lead to over the limit charges, etc. The best way to avoid all this is to know how much credit limit is available on your card and stay within it.
- Review your card balance regularly using the mobile app/website. This way, you are aware of how much credit is left on your card to plan your spending accordingly.
- Pay your card balance quickly, even before the bill is due. This releases the available credit, thereby lowering your credit utilisation ratio and avoiding late penalties and other charges.
- Request your card issuer to increase the limit on your card. Depending on your spending patterns, credit history, and score, the bank may agree to increase your card’s available limits. Having a higher credit limit will give you more breathing room to avoid exceeding the limit on it.
It’s never a good idea to exceed the credit limit on your card. In most cases, when you go over the limit, the transaction will be declined. However, if you’re within the 10% limit, the transaction will most likely go through.
With that said, if you’re frequently exceeding the credit limit, then it pays to negotiate with your card issuer to get the credit limit increased on it.