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Key Highlights
- Credit card providers charge you a fee if you exceed the permitted credit card limit.
- Banks could charge a 2% fee if the transaction value on your credit goes above the specified limit.
- Having a higher credit limit can help in decreasing your chances of using the over-limit facility.
Credit cards can be a great financial tool that can be beneficial to you for various purposes. These cards have an array of features that you can utilise. One such feature is the over-limit facility of a credit card.In this blog, we will be answering the question - what is an over-limit facility in a credit card? We will also be evaluating the charges that are associated with using the over-limit facility.
What is Over-Limit Facility in Credit Card?
Every credit card has a certain credit limit. Beyond this limit, the credit card holder is not allowed to withdraw more funds.However, in some situations, you may need more money than the provided credit limit. This is where the over-limit facility can help. Through the over-limit facility in credit card, you can access more funds than your current credit limit. Also Read: What is Credit Card Limit and How to Check it Online?
Factors that Affect Your Credit Limit
To understand the question - "what is over-limit facility in credit card?", you will also need to understand the various factors that can impact your credit limit.
Credit Utilisation Ratio
The credit utilisation ratio measures how much of your available credit you're using. A low credit utilisation ratio is a sign of great financial health and is indicative of positive financial habits.
Credit History
One of the biggest factors that can determine your credit limit will be your credit history. If you have a positive credit history and a good credit score, you are much more likely to have a higher credit limit.
Pre-existing Loans and Current Income
The amount of income that you generate will play a significant role in determining your credit limit. Moreover, pre-existing loans that you are paying off will also play a role in assessing your credit limit.
Existing Credit Limit
If you want an increase in your credit limit, your existing limit will be taken into consideration as well.
How Does the Over-Limit Facility Impact Your Credit Score?
There is a significant concern over the fact that the over-limit facility can impact credit score. However, you should not worry about it as data about the over-limit facility is not sent to credit bureaus.
What are the Charges for Exceeding the Credit Limit?
These are typically charged as a percentage of the amount exceeding your credit limit, with a minimum fee. Common ranges are 2.5% to 3%, with a minimum of around ₹500. GST is usually added to this fee.
While the over-limit facility offers a temporary solution for unexpected expenses, it's crucial to use it judiciously. Understand the associated fees and strive to avoid exceeding your credit limit whenever possible.Building and maintaining a strong credit history, keeping your credit utilisation low, and making timely payments are essential for better credit card terms and overall financial well-being. Also Read : What is Credit Card and How do Credit Cards Work?
FAQS - FREQUENTLY ASKED QUESTIONS
What is the over-limit facility on my credit card?
The over-limit facility allows you to spend beyond your credit card's pre-set limit in certain situations.
How does the over-limit facility work?
If you attempt to spend more than your credit limit, the Over-Limit Facility may allow the transaction to go through, but you will typically incur a fee.
What are the charges for exceeding my credit limit?
You can expect to pay a fee, usually a percentage of the amount over your limit, plus a minimum charge.
Will using the over-limit facility affect my credit score?
Generally, using the over-limit facility does not directly impact your credit score as this data is not typically reported to credit bureaus.
What factors determine my credit limit?
Your credit limit is influenced by various factors, such as your credit history, credit utilisation ratio, income, existing loans, and current credit limit.
How can I increase my credit limit?
You can request a credit limit increase from your credit card issuer. They will consider your creditworthiness and financial situation.
What is a good credit utilisation ratio?
A good credit utilisation ratio is generally considered to be below 30%, meaning you are using less than 30% of your available credit.
What is the importance of credit history?
Your credit history plays a crucial role in determining your credit limit and interest rates. A strong credit history with a good score can lead to better credit card terms.
How do my income and existing loans impact my credit limit?
Your income and the amount of debt you currently have significantly influence your credit limit. A higher income and a lower debt-to-income ratio generally result in higher limits.
When should I consider using the over-limit facility?
You should consider using the over-limit facility sparingly and only in emergencies. It is generally advisable to avoid relying on this feature regularly due to the associated fees.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
