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Can you use your credit card to buy beyond your card limit?

Credit limit is the maximum amount you can spend using your credit card at any given time.

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Last Updated: Feb 11, 2020, 03.13 PM IST
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You can use the 'over limit' facility anytime you cross the credit limit of your card.
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A credit card allows you to buy things on credit up to a pre-determined limit. Many of us believe that our card will get declined once the credit limit has been exhausted. However, did you know that you can use your card above the available credit limit?

Yes, credit card issuers allow you to use your card for an amount above the credit limit, called the 'over limit' facility. Before you avail of this facility, there are a few things you need to keep in mind. Remember, not using your credit card judicially can land you in a debt trap that will be difficult to get out of.

What is credit limit?
Credit limit is the maximum amount you can spend using your credit card at any given time. Credit card limits are imposed to make sure that you can repay the money you borrow within a certain period of time without falling into debt problems.

The credit limit is determined on the basis of various factors including income, credit profile, credit worthiness etc. Normally, the credit card limit is set by the issuer at the time of issuing the card, but the limit can be revised periodically depending on the card holder's repayment history, credit score, income, and so on. Some issuers allow the card holder to set a limit of their choice themselves within the overall limit set by the issuer. Normally, there are no charges for setting or changing this limit.

Who is eligible for 'over limit'?
Credit purchase beyond the card limit is generally allowed for all credit card users. Basically, credit card issuers give you both options - to transact beyond the credit limit as well as decline the transaction when crossing the credit limit - you can hence opt in or opt out of 'over limit' transactions at the time of payment/transaction. However, using a credit card with the 'over limit' option is subject to terms and conditions.

What is the limit of the 'over limit' facility?
Over-limit as a functionality is provided for customer convenience and is expected to be utilised in exceptional scenarios. Adhil Shetty, CEO, BankBazaar.com said that banks and card issuers do not allow an infinite 'over limit'. "For instance, if your credit card limit is Rs 1 lakh, the bank/issuer may allow you to spend another Rs 10,000 (10 percent of the credit limit) but won't allow a transaction of Rs 10 lakh to go through," he said.

Currently, there is no standard rule regarding the limit on 'over the limit' spending on your credit card. This final limit varies from credit card to credit card and their normal spending limits offered to you. However, Yes Bank's business head - credit cards, Rajanish Prabhu said that several banks/card issuers usually allow transactions up to 10 percent over and above the assigned credit limit.

Shetty said, "Banks allow an over-limit transaction to go through but then apply the associated charges which would be a minimum payment (from Rs 300 to Rs 500) or 3 percent of the amount over the limit plus taxes and charges (if any), whichever is higher."

What are the charges?
Charges on 'over limit' applied by several banks are:
  • HDFC Bank: 2.5 percent on the 'over limit' amount, subject to a minimum of Rs 500
  • State Bank of India: 2.5 percent of the over-limit amount or Rs 500, whichever is higher will be levied
  • Citibank: 2.5 percent of the amount (excluding fees, charges and taxes) over the credit limit, subject to a minimum of Rs 500
  • ICICI Bank: 2.5 percent of the amount that exceeds the limit/ the 'over limit' amount, subject to a minimum of Rs 300
  • Axis Bank: 3 percent on the 'over limit' amount, subject to a minimum of Rs 500
Data sourced from respective banks' websites

When going over the credit card limit, some banks may charge you while others may not. Banks may even waive off your over-limit charges at their discretion. "Though you can purchase beyond your credit limit, exceeding the specified limit makes you liable to pay an over-limit charge of usually up to 3 percent of the over-limit amount," says Naveen Kukreja, CEO, Paisabazaar.com.

To be clear, you must read your credit card's terms and conditions or call your bank before making a transaction above the credit limit. Shetty said, "Borrowers with a clean credit history and long-standing relationship with their bank are more likely to get these waivers."

Will you get an alert when you exceed the credit limit?
Some banks will call you to check on your over-limit transaction to ensure that it is above board, and they will also explain the charges associated with this transaction. However, sometimes customer care personnel may not call you, generally if you are transacting within the permissible over-limit on your card limit (which is normally 10 percent as mentioned above). The process of informing you may vary from bank to bank.

Shetty said, "Some banks/card issuers can simply reject your transaction when you exceed your credit card limit and make transactions beyond it. Also, the customer service personnel can, within their right, decline this transaction as per your credit card's terms and conditions."

Impact of making transaction over the credit limit
Along with paying a fee, using the 'over limit' facility can have a negative impact on your credit score. Kukreja said, "Going over your credit limit not only triggers over-limit penalty but also adversely impacts your credit score as you tend to exceed your Credit Utilisation Ratio (CUR) over 30 percent. Moreover, it also reduces your chances of availing loan against credit card at times of financial exigencies."

What happens if you convert your purchase to EMIs?
If you convert the over-limit transaction to equated monthly installments (EMIs), your actual credit limit will get blocked.

Suppose, you have only Rs 5,000 credit limit left on your credit card and you want to purchase goods worth Rs 15,000 then in such a case can you convert the payment into three EMIs thereby reducing your over-limit transaction to standard credit limit?

Shetty explains what will happen in such a scenario.
He said, "You will be able to make a purchase of Rs 15,000, however as you exceed your limit by Rs 10,000, you will be charged an over-limit penalty of usually up to 3 percent of the over-limit amount. Even though you convert the purchase of Rs 15,000 into three EMIs, your exceeded limit, that is, Rs 10,000 along with your available limit Rs 5,000 will get blocked. As and when you repay your EMIs by the due date, your credit limit will get released."

When can you use the 'over limit' facility?
You can use the 'over limit' facility anytime you cross the credit limit of your card in a billing cycle. However, exceeding the limit will affect your credit score. Hence, you must use such a facility only in the case of emergencies. A purchase related to wants/desire can be postponed to next month or when you have repaid the credit card bill completely. An 'over limit' transaction should be considered only for necessities or emergency purchases.

Point to note
Anuj Kacker, COO, MoneyTap said, "You can purchase beyond the credit limit in a twofold way. Let's take an example: Say you want to purchase a laptop worth Rs 60,000 but your credit card limit is only Rs 50,000. You can overpay the card with the excess amount, that is, Rs 10,000, so you have a negative balance. That way, when you make a purchase that exceeds your card's limit, it won't max out."

"The other way is to communicate with your bank/credit card provider and ask them to temporarily increase your credit limit /ask for a one time increase in the limit. It is advisable to repay the extra amount within 2 days of the purchase. However, it is not advisable to use up 100% of your credit limit on a purchase. This adversely affects your credit score in the long run," he said.
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