Credit cards have many benefits, such as interest-free loans for up to a period, reward points, and cashback. When used smartly, they can help you save a lot on your daily expenses. That being said, there are certain rules you must follow to reap the maximum benefits of this financial tool. One of them is the specific terms and charges incurred while using a credit card. The credit card over limit charges or overlimit fee is one such aspect.
In this post, you will find out everything you need to know about the over limit charges to avoid any penalties in the future.
Credit cards come with a credit limit that is unique for each user. Ideally, you should never spend more than 30% of your total credit limit if you wish to retain a good credit score.
You incur over limit charges on your card, a kind of penalty issued by the credit card company. This is detrimental to your credit score and can force your card issuing company to close the account permanently.
So, it is crucial to understand the credit card over limit fee and manage your finances responsibly.
The good news is that credit card issuers cannot charge an over limit fee unless users exceed their spending or credit limit. It is also mandatory for banks to seek permission before charging any penalty fee. However, if you decline the fee, your transaction will not proceed.
The best solution in such a scenario is to not incur the charges in the first place. There are two easy ways to do this:
Credit cards offer many benefits, but it's important to understand specific terms and charges. Exceeding your credit limit incurs over limit charges, which can harm your credit score and result in account closure. However, banks can't charge the fee without permission, and the best way to avoid it is to not overspend or pay off the balance early. Increasing your credit limit can also help you stay within your spending limits.
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It is best not to exceed the spending above your credit limit. However, if you spend more, the best thing to do is to pay off the entire balance before the end of the month. This will help you avoid any additional charges.
No, the credit card issuer can only charge an over limit fee once in a billing cycle. If the balance goes over the limit, whether due to overspending or delay in repayment, they can charge this fee for two billing cycles at a stretch.
Over limit, charges are calculated on your total outstanding balance above the credit card limit. It is charged at 2.5% of the exceeded amount, with a minimum charge being ₹500.
Yes, over limit charges can drop your credit score due to the increased balance. Incurring these charges too frequently can even get your account closed.
