Credit Card Over Limit Charges: What You Must Know Before Swiping Extra

Credit cards are becoming an important tool because of their attractive rewards, convenience and payment options. These credit cards come with risks of going over the credit card limit. This over-limit can have penalty charges, high interest rates and can impact your credit score as well. Most people swipe credit cards without realizing the impact of going over-limit. In this blog we will discuss credit card over-limit facility, its impact and other details.

Credit Card Over Limit 

Credit cards are issued with a credit limit but when you spend more than the sanctioned limit it is known as credit card over-limit. This over-limit facility can be useful when required in case of emergencies. This over-limit facility is opted on a prior basis which means if you need extra credit you need to inform your bank and agree on the over-limit terms. This facility comes with an over-limit fee with interest charge on exceeding the amount. 

How is the Over-limit Fee Charged?

Here are some of the banks with their over-limit fee listed below- 

These charges may vary from bank to bank and depend on the bank's internal policies.

RBI Rules on Over-limit Facility

The Reserve bank of India regulates the over-limit facility restricting banks to not charge over-limit without the cardholder's consent. Banks must offer options to enable or disable over-limit features through different mediums. Banks cannot charge any interest or charge on your credit limit calculations without informing cardholders. This makes sure that the consumer is aware of any sort of potential risks to make informed decisions.

ALSO READ: https://stablemoney.in/blog/best-way-to-pay-credit-card-bill

Consequences of Exceeding Your Credit Limit

Exceeding your credit limit has several impacts and consequences other than over-limit fees, here are some of them mentioned below-

Impact on Credit Score: 

Over-limit does not directly impact your credit score but frequent over-limit usage can influence credit profile. When you exceed the limit, the credit utilization ratio increases. A high credit utilization ratio can lower your credit score. 

Interest Charges: 

Any amount above your card limit incurs the normal credit card interest (usually 3% -- 3.75% per month this is in addition to the over-limit fee. An interest is charged on outstanding  if the cardholder does not clear their bills on the due date. These interest is compounded if balance is carried forward increasing the liability. 

Hidden Charges and Restrictions: 

Credit card fee comes with an additional 18% GST and if not paid within the due date it attracts missed payment fee. An additional interest charge is levied on the outstanding amount. Banks must discuss these hidden charges with the customer support team so that customers can get clarity on it.   

Card Suspension:

If the cardholder exceeds the credit limit, the issuer can decline future transactions, disable the overlimit feature or can even suspend the card. This can lead to transaction failure when needed the most in emergencies. 

Tips to Avoid Exceeding Your Limit

Here are some of the tips to avoid credit card over-limit and remain under the credit card limit-

Request a Limit Increase: 

If you frequently approach close to your limit then you can contact your bank to increase the credit card limit in order to avoid exceeding it some day. 

Track Your Spending: 

Monitor your credit card spending using the mobile banking or SMS alerts facility. Check your monthly credit card statements in order to stay within your credit limit. 

Disable the Over-Limit Feature: 

If you want to avoid exceeding the credit card limit, you can simply contact your bank to disable this feature. This will enable transaction decline whenever exceeding the limit.

How to Avoid Credit Card Over Limit Charges

If you have over-limit facility enabled, here is how you can avoid credit card over-limit charges- 

Set Alerts: 

You can easily set SMS alerts or notifications for usage which will remind you not to exceed this limit. This will help in keeping a track and avoid over-limit charges on credit cards.

Track Past Spendings: 

Tracking your past spendings can help you check where you have overspend and avoid those spending. This will help you set a limit and keep track of your credit card usage. 

Keep Usage under 70% of limit: 

Keep a limit of 60 to 70% and avoid usage above that limit. This will help you improve credit score and avoid over-limit fees. 

Avoid auto-debits: 

If you are near exceeding the credit limit, turn off auto-debits as it will increase your usage without your knowledge. This will help you track each and every transaction and avoid overspending and overlimit charges.

ALSO READ: https://stablemoney.in/blog/credit-card-balance-transfer 

Conclusion

Credit cards offer great flexibility, but with that convenience comes responsibility. While the over-limit facility can serve as a useful backup during emergencies, it's important to understand the charges and risks involved. Exceeding your credit limit frequently not only invites hefty fees and interest, but can also impact your credit score and financial credibility. The key is to spend wisely, monitor your usage regularly, and opt out of the over-limit feature if you tend to overspend. By staying aware of your credit habits and bank policies, you can enjoy the benefits of credit cards without falling into the over-limit trap.