Credit limit

The amount of credit a financial institution extends to a client. Credit limit also refers to the maximum amount a credit card company will allow someone to borrow on a single card.

Investopedia Says:
Credit limits are usually determined based on information contained in the application of the person seeking credit, or that person's credit rating.

A borrower's credit limit may be raised after he or she exhibits timely and full repayments. However, having a high credit limit and multiple lines of credit may hurt a person's overall credit rating. In these cases, new potential lenders can see that the applicant has access to a large amount of debt, which may lower the chances that this person will be able to repay his or her debts in the future. As a result, new potential lenders might be less likely to offer an additional source of debt.

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Credit card term, referring to the maximum balance allowed for a credit card customer, often set by a Credit Scoring model.

The maximum amount of loan an individual is qualified to receive.
Example: The Dawsons have a monthly income of $5,000 and no debt. If they wanted, they could borrow up to $200,000 to purchase a house based on their income, so their credit limit is $200,000.

A credit limit is the maximum amount of credit that a financial institution or other lender will extend to a debtor for a particular line of credit (sometimes called a credit line, line of credit, or a tradeline). For example, it is the most that a credit card company will allow a card holder to take out at once on a card.

This limit is based on a variety of factors ranging from an individual's ability to make interest payments, an organization's cashflow and/or ability to repay the principal, to the credit standards employed by the lender. A credit limit is also based on the borrower's recoverable assets in the event of default.

Credit limits are most often seen by consumers in the form of revolving lines of credit known as credit cards. They are also used in the extension of open account credit terms from business to business. Other examples include home equity lines of credit, residential mortgages/owner-occupier home loans with redraw facilities, a commercial line of credit or a Bank guarantee. The limit imposed in most cases is fixed for the life of the product, except in the case of credit cards that may be raised upon each application received by the card holder or offer by the card issuer.

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