Why you should not exceed your credit limit  

Learn Why you should not exceed your credit limit

Credit cards are an essential tool for an individual who needs urgent money to cover their expenses, but it becomes a problem when the credit is maxed out. Exceeding the credit limit does not allow the individual to use their credit card which may lead to significant credit card debt and put them in difficult situations. It is important to understand Why you should not exceed your credit limit, In this blog learn about the consequences of maxing out your credit limit and the solution if you max out credit limit.  

What is a Credit Limit?  

The highest credit limit that you can access with your credit card is represented as a credit limit. Credit card providers usually stop further transactions and restore the card’s usability after a user hits their maximum limit.  

People usually go for the best high-limit credit cards, But reaching the credit limit can be stressful. If there is a financial need certain things have to be planned accordingly, this makes the situation better and protects the financial health. So let’s explore what to do when you hit your credit limit to help you recover control and proceed sensibly. 

Refer: 

Personal Loan vs Credit Cards. Which is right for you? 

Consequence of using over credit limit:

Consequence Description 
Over-Limit Fees Credit card issuers typically charge a fee (e.g., ₹500 to ₹1,000) each time you exceed your credit limit. These fees can add up quickly. 
Higher Interest Charges If you go over the limit, the entire balance may accrue interest at a higher penalty rate, which can significantly increase the amount of interest you pay. For example, the interest rate may increase from 20% p.a. to 30% p.a. or higher. 
Negative Impact on Credit Score Maxing out your credit cards or going over the limit can negatively affect your credit utilization ratio, which is a key factor in determining your credit score. 
Declined Transactions If you attempt to make a purchase that would put you over the limit, the transaction may be declined, which can be inconvenient and embarrassing. 
Reduced Credit Limit Credit card issuers may lower your credit limit if you repeatedly go over the limit, which can further impact your credit utilization ratio and credit score. 
Difficulty Obtaining New Credit Consistently going over the limit on your credit cards can make it harder to get approved for new credit cards or loans in the future. 
Account Closure In extreme cases, if you repeatedly go over the limit and fail to pay down the balance, the credit card issuer may close your account. 

How to prevent going over your credit limit?  

Using a user credit card over your credit limit is not a good idea. To prevent going over your credit card limit, consider the following tips:  

Know your limit:  

It is advisable to be aware of your credit limit to prevent credit limit or overage fees. Using a credit card without being aware of your credit limit is like playing a trap. Know your credit limit before you decide to spend your money using a credit card and also check your credit card balance to ensure you have enough to spend.  

Sign up for balance notifications:  

Many card providers allow you to sign up for an alert message when the cardholder is getting close to the credit limit. It is a useful remainder to prevent the user from overspending and other consequences related to the credit limit. You can even set a notification to let you know when you are crossing the credit limit.  

Keep your balance low:  

It is always necessary to pay off your repayment balance in time to keep your utilization low. Paying your credit utilization below 30% cannot affect your credit score.  

Alternatives if your credit limit is low:  

If you have a low credit limit and find it difficult to manage your financial problem, there are a few alternatives that can be considered:  

Request an increase to your credit limit:  

You might choose to raise your credit limit if it is currently too low. If you want to raise your credit limit, you need to have a solid credit history and a steady income. If your credit card usage history is poor and you have a history of missing payments, the lender will likely reject your request and you may have to look into other options.  

Borrow money for low interest rates:

When things become too expensive to manage, take out a loan from an RBI-regulated company at a reasonable interest rate, such as Zap Money. They provide instant personal loans to borrowers with excellent credit scores. You can solve your financial issue with a personal loan that has a reasonable interest rate.  

FAQ:  

Why is it important to avoid exceeding my credit card limit?  

Exceeding your credit limit can negatively impact your credit score, as it indicates to lenders that you are struggling to manage your credit responsibly. This can make it more difficult to obtain new credit or receive favorable interest rates in the future.

What are the consequences of going over my credit limit?  

Apart from damaging your credit score, exceeding your credit limit can result in additional fees and penalties imposed by the credit card issuer. These charges can accumulate and add a burden to your financial situation.

How can I effectively manage my credit card limit?  

To avoid exceeding your credit limit, it is crucial to monitor your spending and keep track of your outstanding balance. Consider setting up automatic payments or reminders to ensure payments are made on time and in full.

Hariharan Ravichandran

Understanding the ever-changing environment of money may be a difficult experience.I'm Hariharan, a seasoned finance explorer and blogger. I am right there with you, beginning on this journey of financial enlightenment as a fellow traveler.

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