Credit Limit

DEFINITION of 'Credit Limit'

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

BREAKING DOWN 'Credit Limit'

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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RELATED FAQS
  1. How do I get a higher limit on my credit cards?

    Before applying for a higher credit limit, it is important to demonstrate responsibility. One way to do this is by making ... Read Full Answer >>
  2. How will accepting a higher credit card limit affect my credit score?

    Accepting a high limit on a credit card positively affects a credit score, as long as the credit is not used. Once some or ... Read Full Answer >>
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