Spending more than the assigned limit on your credit card can have serious financial consequences. Many people either unintentionally exceed their limit or do so out of necessity. However, not all banks allow customers to go beyond their limit, and those that do often impose hefty fees. Beyond just extra charges, it can also harm your credit score, making it difficult to get loans or additional credit in the future. Let’s explore the key downsides of exceeding your credit limit and how you can avoid these pitfalls.
Some Banks Allow Over-Limit Spending but at a Cost
Banks often provide the flexibility to spend beyond the credit card limit, but usually only for customers with good repayment history and responsible usage patterns. If your bank offers this option, it means your over-limit transactions might already be pre-approved. However, using this facility comes with additional fees.
Over-Limit Fees: A Costly Choice
When you go beyond your credit card’s limit, you may be charged an over-limit fee, which varies across banks. Typically, this fee ranges between Rs 500 and Rs 1,000 or a small percentage of the amount exceeding the limit. If you regularly exceed your limit, these fees can quickly add up, making it a costly habit.
High Credit Utilization Harms Your Credit Score
One of the biggest risks of overspending on a credit card is its impact on your credit score. Your credit utilization ratio—the percentage of your available credit that you use—plays a key role in determining your score.
- Experts recommend keeping the utilization ratio below 30% to maintain a healthy credit score.
- If you consistently max out or exceed your card limit, it signals to banks that you are heavily reliant on credit, which can hurt your creditworthiness.
- A poor credit score could lead to loan rejections or higher interest rates when you apply for credit in the future.
How to Manage Spending and Avoid Fees
If you find yourself in situations where you must exceed your card limit, it’s better to request a credit limit increase from your bank. Banks usually offer this facility to customers with a strong credit score and reliable repayment history. An increased limit will not only help you avoid over-limit fees but also reduce your credit utilization ratio, keeping your credit score in good shape.
Key Takeaways
- Over-limit spending can lead to high fees, usually between Rs 500 and Rs 1,000.
- Banks allow limit extensions for select customers with good repayment history.
- Exceeding your limit can harm your credit utilization ratio and negatively affect your credit score.
- Requesting a credit limit increase is a smarter way to manage spending without hurting your finances.
Being mindful of your credit card usage is essential to avoid unnecessary fees and maintain a good credit score. Proper planning and responsible spending will save you from financial stress and ensure better access to credit when you need it.
