A credit card allows you to purchase items on credit up to a specific limit. Most of us assume that once our credit limit is reached, our card will be declined. However, are you aware that you may use your card beyond the available credit limit?
Yes, credit card companies allow you to use credit card beyond the credit limit, which is known as the ‘over limit’ facility. Before using this service, there are a few things you should be aware of. Remember that not using your credit card wisely can lead to a debt trap that is difficult to escape.
What is a Credit Limit?
The credit limit is the most you can spend on your credit card at any particular time. Credit card limits are imposed to ensure that you can repay the amount you borrow within a specified period of time without being in debt.
Usually, the credit limit is set by the issuer when the card is issued, but it can be revised on a regular based on the cardholder’s repayment history, income, credit score, and so on. Some issuers permit cardholders to choose their own limit within the overall limit established by the issuer. Typically, there are no fees associated with establishing or modifying this limit.
Maximum limit of the ‘over limit’ facility.
There is currently no specific rule regarding the ‘over limit’ spending on your credit card. This final limit differs depending on the credit card and the normal spending limits available to you. Some banks may charge you if you exceed your credit card limit, while others may not.
Banks may even waive your overlimit fees at their discretion. Thus, you can purchase far above your credit limit, surpassing the specified limit subjects you to an over-limit charge of up to 3% of the over-limit amount.
To be clear, before making a purchase exceeding the credit limit, you must read the terms and conditions of your credit card or contact your bank.
Will you be notified if your credit limit is exceeded?
Some banks will give you a call to verify your over-limit transaction to make sure it is legal and to inform you of the fees related to this transaction. However, often customer service representatives might not call you if you are regularly transacting within the specified over-limit on your card limit. You may receive information in a different way depending on the bank.
Is It Okay to Exceed Your Credit Limit?
In general, it is not a good idea to exceed your credit limit because it might negatively affect your credit score. Doing so will raises your credit utilization ratio, which lowers your credit score. As a result, spending even more of your credit limit than 100% of it could be a really bad financial move for you. A negative credit score is the outcome of exceeding your credit limit, making you a risky borrower in the eyes of card issuers and loan lenders.
How Can You Prevent Going Over Your Credit Card Limit?
Try to identify the justifications for your need to go above your credit limit. You might spend some money that is not necessary. Set up a detailed monthly budget in advance and make every effort to keep to it. However, you may go beyond the limit in an emergency; however, this should not become a habit. If you determine that your credit limit is insufficient after planning your monthly expenses, you should ask for an increase.
Conclusion
Customers of credit card companies are given access to an over-limit facility so they can use it in times of need or financial hardship. However, a lot of people wind up making it a habit of going over their credit limit, which results in them having a negative credit score. You can go over your credit limit, but you must try not to. However, if you accidentally go over it, try to figure out why it happened and try coming up with a solution so it won’t happen again.