What Happens When You Exceed Your Credit Limit?

While researching about credit cards you must have come across the term credit limit. The credit limit is one of the important aspects of credit cards. In this article, we have covered everything about the credit limit and what happens when you use your credit card beyond the provided credit limit.

Exceeding the credit limit can result in embarrassing moments such as a card declining at the checkout counter, moreover it damages your credibility. For this reason, it becomes all the way more important to understand how exceeding the limit can affect your account and how you can avoid it from happening.

Keep reading to kick start your research.

What is a Credit Limit?

A credit limit is the maximum amount that you can use on your credit card to fund your purchases. This limit is determined by the credit card issuer on the basis of 3 factors: first is your income level, then your credit report and score, and lastly how much is the lender ready to lend you the amount after considering the risk factor. If it’s your first credit card then it is more likely that you will get a lower credit limit.

However, you can enhance or increase your credit limit in two ways. The first one is that you get the credit limit enhancement offer from the bank that you can accept and the other option is that you request a limit increase. For this, you need to use your credit card at least for a year and keep your credit card dues clear on time, once you know how to use a credit card wisely then you can surely apply for a credit limit enhancement.

Can exceeding the credit limit affect your credit account?

You need to know that it is advisable to use 30% - 40% of the credit limit. Anything above this can affect your credit account. Possible outcomes of exceeding the credit limit are as follows:

• Declined purchases: This one is the most possible outcome that you can face on exceeding the credit limit. Whenever you shop without clearing the previous credit bill, your transaction will get declined, whether you shop online or offline.
• Extra charges: Another possible outcome is that on exceeding the credit limit the card issuer can charge you the over-limit charges. To avoid these charges you must clear your credit card dues on time every month. Moreover, keep the credit utilization ratio low.
• Possibility of increase in interest charges: This outcome can be a bit too harsh. The credit card issuer can decrease your credit limit and increase the interest rates on your credit card if you exceed the provided credit limit frequently. To avoid this from happening use your credit card wisely.

How to avoid exceeding the credit limit?

We have listed below some of the suggestions that you can use to avoid exceeding the credit limit. They are as follows:

• Set threshold limit: You can set a threshold limit so that on reaching that limit you stop using your credit card further. It is advisable to limit the credit utilization ratio between 30% - 40%. You can use the credit card after this limit only during an emergency.
• Track your credit card statement: Keep a track of your credit card statement every once in a while so that you have an idea about your credit utilization. Also, you get an idea about your credit score as well whether it is decreasing or not.

Also Read: Things You Must Look For In Your Credit Card Statement

• Pay your credit card dues in full: Another thing that you can do is pay your credit card dues in full, for this, you can register for auto-debit services. So that you never miss the due date and your credit card dues are clear all the time.
• Request a credit limit increase: You can even request a credit limit increase from the credit card issuer. You need to bear in mind that you need to use your credit card for a while and responsibly so that the credit card issuer can accept your credit limit enhancement request.

Bottom Line:

To conclude, it is very crucial to maintain a good credit utilization ratio. You can not afford to exceed the credit limit as it will attract the over-limit charges and the chances of your transactions getting declined increases. So, it is advisable to not exceed the credit limit and maintain a credit utilization ratio between 30% - 40% for building a good standing account.