Why you should avoid exceeding your credit card limit
What's the story
Credit cards offer a world of convenience, but going over the limit can lead to financial chaos. The consequences of exceeding your credit card limit can be severe, including hefty penalties and higher interest rates leading to increased financial burden. You may even see a negative impact on your credit score. Here's why it's important to stay within your sanctioned credit card limit and avoid these charges.
Financial impact
Penalties for going over the limit
Over-limit charges are becoming increasingly common across India. Credit card issuers impose fines of ₹500-₹750 for every breach, while some banks charge 2-3% of the overdrawn amount. Axis Bank, ICICI Bank, and HDFC Bank levy both fixed and percentage-based penalties. These charges also attract 18% GST, further adding to the financial burden on consumers.
Risk assessment
Impact on credit score and interest rates
Exceeding the credit limit inflates a borrower's credit utilization ratio, an important factor for credit bureaus in assessing risk profiles. A higher utilization can negatively impact your credit score, even if payments are made on time. Moreover, any amount over the limit attracts revolving interest rates of 3-3.75% per month, adding to the financial burden if not managed properly.
Transaction troubles
What happens to your card if you exceed the limit
Once you exceed your credit limit, issuers may refuse to allow further transactions and temporarily suspend your card. This could lead to transaction failures in emergencies or time-sensitive situations. It can also complicate daily spending methods, making it even more difficult for users who rely heavily on their cards for everyday purchases.