Is it Possible To Use Credit Card Beyond Your Credit Limit? - Kotak
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03 JANUARY, 2022

When a credit card issuer or a bank issues you a credit card, it always has a credit limit. The credit limit is usually denoted in an amount that stands for the maximum amount you are entitled to while purchasing or making transactions on your credit card.

When you apply for a credit card, this credit limit is ascertained by the credit card issuer or bank after keeping your credit history, income, repayment capacity, and your credit score in mind amid other crucial factors. However, it might get a little restrictive for a user who needs a higher credit limit while transacting often.

While in layman terms, it is clear that you can’t make purchases above this credit limit, do you know there are certain instances where you can even overstep this available credit limit at times? Such transactions are termed as ‘over limit facility’ and are extended by banks considering the borrower’s spending and repayment behaviour reflected in their credit card statement.

Let’s find out more about the subject and know your credit limit in complete detail:

What is Credit Limit?

Credit limit, as the name suggests, is simply the amount limit set by your credit card issuer or the bank when you apply for a credit card. The credit limit is ascertained based on several factors, including:

  • An applicant’s credit score
  • Credit history
  • Repayment history
  • Income
  • Repayment capacity
  • Debt-to-income ratio
  • Any fraud or credit card defaults in the past

These factors help a lender ascertain if the borrower can be trusted with a credit card or not. The credit limit is the maximum amount to which an applicant can utilize the credit card for transactions and payments. This is kept in place to ensure that applicants don’t bite more than they chew off and stay within the buying limits. This helps the borrower to repay the borrowed money over time quickly.

Although the bank set this limit while sanctioning you the credit card, it is not entirely fixed. It can be revised after considering your previous credit card repayments, an increase in your income, or an increase in your credit score. The revised and extended credit limit is offered to the borrowers and, in some cases, left on the borrower’s choice to set the credit limit themselves. This is done without any extra cost by the banks and speaks of a good reputation with your lender.

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“Over Limit” Eligibility Criteria

The ‘over limit on credit cards’ facility is available to borrowers who demonstrate a sincere and regular repayment history, receive an additional income from other sources, earned a salary raise, have an increased credit score, and maintain a long-standing relationship with the lender.

However, in some instances, the bank increases this credit limit on the borrower’s request, keeping in mind any of the factors mentioned above. For example, if you’ve got a promotion at work, you can apply for a credit card limit increase, and it will be approved based on your increased repayment capacity.

Apart from this, if a lender assesses your credit card statement to see that you avail of higher credits but are always regular with timely repayments, it may increase your credit limit without asking for it. It is upon you whether to avail of that credit limit or not.

Do You Get Notified on Overstepping Your Credit Limit?

The decision of notifying their customers to know when they’re overstepping their credit limit lies with the bank. In some cases, the borrowers can also set notification alerts on whether they want to get informed by the bank when they exceed a certain limit.

Mostly, when you transact within the available credit limit or the ‘permissible over-limit,’ you get a notification from the bank to confirm if you did the transaction. This step is kept in place to ensure that there’s no fraudulent activity on your credit card or there’s no identity theft issue.

Credit Card Over Limit Charges

The decision to extend a borrower’s credit limit depends on the bank largely. Based on an increase in income, higher credit score, exemplary repayment behaviour, and more such conditions, the bank automatically increases the borrower’s credit limit without any additional costs.

However, in cases other than the above, one can request their bank to increase the credit limit at a specific charge. The final verdict of allowing so or not lies vested with the bank. All banks have a different schedule of charges and terms concerning an over-limit increase on the credit card. Check with your specific lender for the same.

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How Does Transacting Outside Your Over Limit Impact You?

When you’re availing of an over-limit facility on your credit card, it is recommended to exercise some caution. With an increased credit limit also comes increased spending, and the credit utilization ratio rises too resultantly. If you overstep the credit utilization ratio by 30% repeatedly over time, it may take your credit score to affect negatively. Next time, it will also impact your future approvals when you apply for a credit card or loan.

It is recommended that despite being offered a higher credit limit or over-limit, make sure you remain judicious with its utilization and stay within the boundaries and the credit utilization ratio.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.