The amount of money you get to spend using your credit card is known as the credit limit of your card. It can vary from card to card and person to person on the basis of the creditworthiness of an individual. Credit cards give you financial stability by allowing you to make purchases for which you can pay later. But what if you need to spend more than your credit limit? Is it possible to spend beyond your credit limit or not? This is a question that might have come to your mind and it is really essential to know the answers to such questions if you are a credit cardholder. So, with an aim to help you out, we are here with this article to answer this question. Keep reading to know more:
Can You Spend Beyond Your Credit Limit?
Understanding the financial needs of their customers, most credit card issuers allow their customers to spend beyond their credit limit for which an over-limit fee is charged. Spending beyond credit limit is allowed to all their customers by the banks but normally you can only spend 5% to 10% of your credit limit and not infinite. For example, if your credit limit is Rs. 5 lakhs, your bank will allow you to spend only up to Rs. 50,000 and not more than that. Now, there can be two cases of over-limit purchases:
Case 1: When you pay in advance and go beyond your credit limit
Suppose your credit limit is Rs. 5 lakhs and you add Rs. 1 lakh to your credit card account. Now, you have Rs. 6 lakhs to spend. In such a case, some card issuers charge the over-limit fee and some do not charge as the extra Rs. 1 lakh are added by you already. Here is a list of some major card issuers mentioning whether they charge an over-limit fee or not when you pay in advance:
HDFC Bank generally doesn’t allow its credit cardholders to spend beyond the credit limit. There are some exceptional cases when the bank allows to do so (like if the over-limit amount is very small) and charges a fee of 2.5% of the over-limit amount or Rs. 500 (whichever is higher).
Axis Bank allows all its customers to go beyond their credit limit. The over-limit fee of 2.5% of the over-limit amount or Rs. 500 (whichever is higher) is charged in such a case.
ICICI Bank also allows all its customers to spend more than their credit limit on all ICICI Credit cards. But, the over-limit fee is charged for some customers and not for others. The fees can be applied or can be waived off depending on the creditworthiness of the customer or on that particular card.
Case 2: When you don’t pay in advance but spend beyond your credit limit
In such a case when you spend beyond the credit limit without any upfront payment, then all the card issuers charge an over-limit fee (generally 2.5% of the over-limit amount). However, some card issuers don’t provide an over-limit facility.
Should You Go Beyond Your Credit Limit?
Going beyond your credit limit is not generally a good idea as it can impact your credit score badly. Using your full credit limit is not advisable if you want to build a good credit score as it increases your credit utilization ratio. Hence, using even more than 100% of your credit limit can be a really bad financial decision for you. Going beyond your credit limit results in having a bad credit score and hence you become a risky borrower for the card issuers or loan lenders.
How Can You Avoid Exceeding Your Credit Card Limit?
From the above information, you might have understood that spending more than your credit limit is not at all a good idea. But if you exceed it again and again and don’t know how to manage your expenses without going beyond your card limit, the following tips can help you:
You should try to find out the reasons why you need to exceed your credit limit. There might be some unnecessary expenses that you make. Sit and make a proper monthly budget and try to stick to it no matter what. However, you can go beyond the limit in case of emergency situations, but it should not become your habit. After making a plan of your monthly expenses, if you find that your credit limit is not enough, you should request an increase in your credit card limit.
Credit card issuers provide their customers with an over-limit facility so that they can avail of it in emergencies or financial crises. But, many individuals end up making it their habit to exceed the credit limit and hence are left with a really bad credit score. You can spend beyond your credit limit but you should always try not to do so. Still, if you exceed it by some chance, try to find out the reasons why it happened and find a solution so that it doesn’t happen again.