Can you use your credit card beyond its limit? Know the rules and risks

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You can sometimes spend beyond your credit card limit, but this comes with conditions and potential risks. A safer option is to request a credit limit increase, which offers more flexibility without the additional fees and risks associated with over-limit transactions.

Credit cards come with a spending limit, but there are times when you might need to make purchases that exceed this limit. This raises the question: can you spend beyond your credit card’s approved limit? The short answer is yes, in some cases. Banks may allow select cardholders to make over-limit transactions, but these come with fees and potential risks like impacting your credit score. In this blog, we’ll explore how over-limit spending works, the associated costs, and what you should consider before using this feature.

1. Over-limit transactions: how it works

In certain cases, credit card issuers may allow you to spend beyond your pre-set credit limit. This feature is not automatically available on all credit cards but is typically offered to select cardholders who have demonstrated responsible usage and a good repayment history. Banks consider several factors, including:

• Your credit score
• Your repayment history
• The type of credit card you hold
• Your overall relationship with the bank

2. Over-limit fees: what to expect

While spending beyond your credit limit may be convenient in emergencies, it usually comes at a cost. Most credit card issuers charge over-limit fees when you exceed your limit. These fees may vary but typically range between ₹500 to ₹1,000 or a percentage of the amount you overspend. These additional fees can increase your total outstanding balance, making it more expensive to manage your credit.

Always check the terms and conditions of your credit card agreement to understand the exact charges for exceeding your limit.

3. Impact on credit score: the risks

Exceeding your credit card limit can impact your credit score negatively. One of the key factors that determine your credit score is your credit utilization ratio, which refers to the percentage of your credit limit that you are using. A higher utilization ratio can signal to lenders that you are over-relying on credit, which can lower your score. Generally, it's recommended to keep your credit utilization below 30% of your credit limit to maintain a healthy credit score.

Spending beyond your credit limit can push your utilization ratio over this recommended threshold, which may lead to a drop in your score. In the long run, this could affect your ability to secure loans or other credit facilities.

4. Requesting a credit limit increase: a safer alternative

If you often find yourself needing to spend more than your credit limit allows, it might be more beneficial to request a credit limit increase from your bank. Banks are usually open to increasing credit limits for cardholders who have shown good financial behaviour, such as timely payments and low credit utilization. A higher credit limit not only gives you more flexibility but also helps maintain a low utilization ratio, which can boost your credit score.

To request a credit limit increase:

Contact your bank: You can do this through customer service or your online banking portal.

Provide updated financial information: Your income, employment status, and repayment history will be evaluated.

Wait for approval: If approved, your bank will notify you of your new limit, giving you more room for future spending.

5. Considerations before exceeding your limit

While over-limit spending can be a helpful feature, it’s important to weigh the risks and costs involved. Here are a few points to consider:

Fees: Over-limit fees can add up and increase your outstanding balance.

Credit score impact: Exceeding your limit can hurt your credit score if it results in a high utilization ratio.

Interest rates: Over-limit balances are typically subject to the card’s regular interest rates, which could lead to more significant financial burdens over time.

If you regularly need more credit than your current limit allows, a limit increase is a better and more sustainable option than relying on over-limit transactions.

While it is possible to use your credit card beyond the approved limit in certain situations, this option comes with costs and potential risks. Always be mindful of your spending habits to maintain a healthy financial profile.