Credit cards have become a key part of managing finances in India, offering perks like interest-free periods, cashback, and rewards. Their convenience makes them a go-to for both daily purchases and bigger expenses. But, while they come with many benefits, it’s essential to be aware of the terms and conditions, including the credit limit and over-limit fees.
One important aspect to understand is the over-limit facility. This allows you to spend beyond your approved credit limit, but it often comes with extra costs and penalties. By knowing how over-limit charges are calculated, what they’ll cost you, and how they could impact your finances, you can use your credit card more wisely and avoid unnecessary fees.
What is Over Limit in Credit Card?
The over-limit facility on credit cards lets select cardholders go beyond their approved credit limit, usually by 10% to 20%, depending on the bank’s rules. For example, if your limit is ₹50,000, you might be able to spend up to ₹60,000 with this feature. This extra spending power is typically extended to clients who have a good track record with their credit card use and repayment behaviour. It can be a lifesaver during emergencies or high-expense times like weddings or festivals.
However, using the over-limit facility comes with additional costs. Charges typically range from 2.5% to 5% of the amount you exceed. So, if your limit is ₹80,000 and you make a purchase of ₹95,000, you’ll incur a fee on the ₹15,000 excess. Remember, the amount you go over your limit isn’t interest-free—the usual interest rates will apply. While some banks may offer waivers for small amounts over the limit or provide lower fees for premium credit cards, it’s wise to check with your bank for their specific terms.
How Does Credit Card Over-Limit Work?
Using this facility is a choice you make as a cardholder. When you go beyond your credit limit, you’ll need to give explicit consent to your bank to allow this extra usage. Banks often approve these over-limit transactions as a helpful gesture, but they expect this option to be used sparingly and only in truly exceptional situations.
There isn’t a one-size-fits-all rule for the over-limit facility; it varies from bank to bank. Typically, you can exceed your limit only by a reasonable amount, and you must agree to the bank’s specific terms and conditions beforehand. If you choose to use this facility, keep in mind that additional charges and interest on the excess amount may apply.
Who is Eligible for Credit Card Over-Limit Facility?
To qualify for the credit card over-limit facility, you generally need to be a responsible cardholder with a solid track record. This means paying your bills on time, keeping your credit usage in check, and maintaining a healthy credit history. If you consistently meet these criteria, you’re more likely to be eligible for the over-limit facility. On the other hand, if your credit score is less than stellar or you’ve had a history of missed payments, banks might be hesitant to offer you this option. Essentially, a positive credit profile increases your chances of being approved for the over-limit feature.
What is the Penalty for Exceeding Credit Limit?
Exceeding your credit limit can lead to a few unwelcome consequences. Most credit card issuers impose an over-limit fee, which might be a percentage of the excess amount or a fixed sum, such as ₹500, plus GST. On top of this, you could face higher interest rates on the over-limit portion, making the extra spending even costlier. Repeatedly going over your limit can also harm your credit score, as high credit utilisation is a key factor in evaluating creditworthiness. Always review your credit card’s terms to understand the specific penalties that apply.
Does Taking Credit Card Over-Limit Facility Impact Your Credit Score?
Using this facility itself doesn’t directly impact your credit score since these transactions aren’t reported to credit bureaus. However, habitually exceeding your credit limit can have an indirect effect. Each time you go over your limit, it raises your credit utilisation ratio, which ideally should stay around 30%. Regularly pushing past your limit can signal financial instability, leading to a higher credit utilisation ratio that might harm your credit score over time.
How to Avoid Over-Limit Charges
Here are some simple tips to help you avoid those pesky over-limit charges on your credit card:
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Keep an Eye on Your Spending
Regularly check your credit card balance and recent transactions. Most card issuers offer apps or online tools that let you monitor your spending in real-time. This way, you can keep track and stay within your limit.
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Set Up Alerts:
Use the account alerts provided by your credit card issuer. Set up notifications to let you know when you’re nearing your limit.
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Use Credit Wisely
Stick to using your credit card for essential purchases that you can comfortably repay. Avoid large purchases if your balance is already close to the limit to prevent accidental over-limit situations.
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Pay Regularly
Make sure to pay your credit card bill on time and, if possible, in full each month. This habit will help you avoid interest and keep your balance well below your credit limit.
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Deactivate Over-Limit Facility
If you don’t need the over-limit facility, consider turning it off. This can help you avoid unintentional overspending and stay within your budget.
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Ask for a Limit Increase
If you find yourself frequently hitting your credit limit, reach out to your card issuer and ask for a credit limit increase. This can give you a bit more breathing room and help manage your expenses better.
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Conclusion
Understanding and managing your credit card limit is key to keeping your finances in check and avoiding unnecessary charges. By keeping a close watch on your spending, setting up useful alerts, using credit wisely, and making timely payments, you can steer clear of over-limit fees. Additionally, if you don’t need the over-limit facility, turning it off can help you stay on track. And if you’re often reaching your limit, asking for an increase can make things easier. While the over-limit facility can be handy in a pinch, frequent use can harm your credit score. By following these straightforward tips, you’ll be better equipped to handle your credit card responsibly, avoid extra fees, and maintain a healthy financial profile.
