Can You Use a Credit Card Beyond the Credit Limit?

06 April 2022

Credit cards allow users to buy goods and services or make bill payments. Individuals can pay the bills later, either in a lump sum or via EMIs. However, they can only use their card up to a predetermined credit limit. 

Contrary to popular beliefs that one cannot use credit cards beyond their limit, banks and financial institutions provide an over-limit facility to certain customers. This facility allows them to spend more than their predetermined limit subject to terms and conditions.

What is a Credit Card Limit? 

This is the maximum amount cardholders can spend. One can use a particular card only up to the pre-approved limit set by card issuers. The limit set is based on many factors like income status, credit history, past repayment patterns, etc. 

These limits are not static. Banks periodically revise card limit on the basis of repayment patterns of creditors. Many card issuers also allow the option of setting revised card limits to individuals themselves. However, it applies to premium customers only.

Read about Ways to Pay off your credit card bill faster

What is an Overdraft Limit Facility in Credit Cards?

Over limit on credit cards is the excess amount that one spends using their cards over and above the credit limit. It varies from bank to bank. The credit profile of creditors determines their overdraft limit.

For example, let’s say X has a card limit of Rs. 50,000, and he has utilised the full limit. Card issuers might consider his credit profile and grant him an overdraft limit facility of up to Rs. 5,000. 

This relaxation is assumed to be used only in exceptional conditions. So, if one frequently opts for this facility, then card issuers or banks might revoke it.

Who is Eligible for Overdraft Limit?

Individuals having sincere and regular repayment patterns are eligible for this facility. Furthermore, individuals having a good credit score and substantial income from other sources have higher chances of getting this facility. Some credit card issuers also provide this relaxation based on requests from cardholders. 

Dangers of Overusing credit card

Individuals not covered under overdraft limit facilities might face the following consequences:

  • Declined transactions

Credit card transactions will get declined if someone exceeds their credit limit. Individuals may not be able to finish their purchases or pay bills. It will increase financial stress for them.

  • Overdraft limit fee

Banks will charge an overdraft limit fee if one is not eligible for an overdraft limit facility. They will allow the transactions to proceed in order to avoid unnecessary hassles for card users. Once the transaction is completed, card issuers will charge a certain fixed fee.

  • Increase in interest rates

Cardholders may face an increase in interest rates if they overshoot their limit. In addition, it will have an impact on their future repayments when they might have to shell out more. 

  • Drop in credit score

Users may face a drop in their credit score as well. Exceeding the credit limit is considered bad financial management. It will reflect in an individual’s credit report. A drop in credit score may negatively affect future loan applications.

  • Deactivation of the card by the bank

Frequent overshooting of the credit card limit may force card issuers to deactivate or close individuals’ credit cards. Banks may allow this facility only in exceptional situations, and recurring use of this facility is not allowed. 

Final Word 

Cardholders must avoid exceeding their limit as far as possible to avoid any dangers of overusing credit card. That said, if breaching the limit is unavoidable, one can request their bank for a one-time overdraft limit facility or increase the credit limit. 

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