Is It Possible To Use Credit Cards Beyond Your Credit Limit?

Can You Use a Credit Card Beyond the Credit Limit? Can you really? What happens if you have a credit card with a credit limit of Rs.1 lakh and make a purchase of Rs.1.2 lakhs? Will the card transaction go through, or will it be declined? Actually, it will go through! 

Surprising? Don't be. When you use a credit card beyond the credit limit, it will be charged under the 'Over Limit' facility. Let us learn more about this feature available with all major credit cards. 

When you get a new credit card, you will be notified of the credit limit on the card. A credit limit is the maximum amount that you can borrow from that credit card. This limit is determined by the bank based on various factors like your credit history, your repayment history, your credit score, other debts and so on. 

A credit limit ensures that you don't go over your limit. It is based on your income and repayment capacity so that you don't struggle to pay the bills. But this credit limit is not fixed; it is upgraded periodically based on your card usage, bill payments and so on. Also, most banks offer higher credit limits to those who have a good standing with the bank. 

Additional Read: Top Rated Premium Credit Cards

So What Is 'Over Limit'? 

Over Limit is a benefit offered to selected customers based on their usage of the credit card. There is no set amount for 'over limit' usage. It is just a consideration based on your standing with the credit card company. 

For example, let's say you have a credit limit of Rs. 52,000 on your card and have swiped the card at the merchant for a bill value of Rs. 60,000. You are then notified by the bank about the over limit usage and given an option to avail the benefit of the over limit. Only after your consent, the transaction is allowed. 

Now, the thing with over limit usage is, you will incur additional interest charges on the over limit amount. This generally ranges anywhere between 2.5% to 5% of the additional amount you have availed. 

Also, if you choose not to avail the over limit, you will be notified about the declined transaction. This is just a means of letting you know that you are close to your credit limit and need to watch your spending.  Also, you must remember that the over limit amount is not interest-free. You will still be charged the normal interest on the usage.

Over Limit amount is considered as a part of your normal credit limit. So, if your normal credit limit is Rs. 50,000, and you make a transaction of Rs. 52,000, you will be charged interest on Rs. 2,000. This additional interest is also known as 'over limit interest'.

Also, over limit usage is not the same for all banks. Some banks will allow you to make purchases up to 20% over the credit limit, while some others will allow up to 10% over the limit. So, it is best to check with your bank before availing the over limit facility.

Also Read: How To Get A Good Credit Utilization Ratio

Who Is Eligible To Avail The Over Limit?

Any card holder can avail the over limit as long as they are diligent card users; making payments on time; keeping credit utilization at a minimum; and keeping the account in good standing. 

A bank will not offer the over limit facility to you if your credit score is below average, or if you do not have a history of paying your bills on time. 

Is it a good idea to avail the over limit facility?

While going over the limit can be a good idea in times of emergency, frequently going over the limit can also lead to a lot of mounting debt. The additional over limit charges won't do any good in the long run. It is better to keep your credit utilization at a minimum and avoid the over limit. 

If you are in real need of some funds, you can check alternative sources of funds like borrowing from family or friends, a short-term personal loan, salary day loans, gold loan, etc. 

Also, if you are frequently availing the over limit facility, it is time to sit down and analyze your financial situation and make major changes where necessary. Find out better ways to pay your bills and reduce your credit utilization.  

Also Read: Which Credit Card gives the highest credit limit?

How over the limit facility can affect your credit score? 

Over limit usage is not something you can hide from your credit rating agency. The reason being is that over limit usage and over limit interest is considered as a part of your credit utilization and as such will affect your credit score.

Over limit usage can help you protect your credit score in case of an emergency. But if you regularly charge more than your credit limit, it could be that your credit score is already at a low point and the over limit usage will not do any good.

Over limit usage can affect your credit score because banks keep track of your credit utilization and over limit usage. This gives a rough estimate of your creditworthiness. So, if you make transactions often, and you do not pay the bills on time, the banks can get a rough idea of your creditworthiness.

FAQs Can You Use A Credit Card Beyond The Credit Limit?

1. What is over limit usage?

Over limit usage is a credit facility offered by some banks to customers. Under this facility, if you charge more than your credit limit, your bank will charge you an additional amount for the over limit usage.

2. How much over the limit can I use on my credit card?

The over limit charge varies based on the bank. Some banks allow you to use up to 20% over your limit, while some banks allow you to use up to 10%. Please check with your bank to ensure that you are allowed to use the over limit facility.

3. What are the charges for availing the over limit facility?

Banks generally charge around 2.5% - 5% of the over limit amount. 

4. How do I know if my credit card is over the limit? 

You can check your credit card statement to see if you have enough credit limit left to make purchases. Most banks send alerts on your purchase amount and remaining credit limit, as and when you transact, so that you can make an informed decision. 

5.  What are the alternate credit options to avail the over limit facility?

Instead of using the over limit facility, you can opt for instant personal loans, gold loans, top-up home loans, or other alternative credit options.