Credit Limit

What is '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.

RELATED TERMS
  1. Credit Rating

    An assessment of the creditworthiness of a borrower in general ...
  2. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  3. Secured Credit Card

    A type of credit card that is backed by a savings account used ...
  4. Credit Event

    Any sudden and tangible (negative) change in a borrower's credit ...
  5. Subprime Credit Card

    A type of credit card issued to people with substandard credit ...
  6. Credit History

    A record of a consumer's ability to repay debts and demonstrated ...
Related Articles
  1. Credit & Loans

    The Basics Of Lines Of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  2. Credit & Loans

    Build Your Credit Score

    Here are four good ways to build your credit score when you're starting from scratch. Do it right and you'll end up with excellent credit.
  3. Credit & Loans

    Credit And Debt Management: Building Credit From Scratch

    by Cathy ParetoNow that we have a fair understanding of how your credit score is determined, let's introduce how credit is established from scratch. You must be of legal age (18) before you can ...
  4. Home & Auto

    Revolving Credit vs. Line of Credit

    Revolving credit and a line of credit are arrangements made between a lending institution and a business or individual.
  5. Credit & Loans

    Breaking Down Credit Card Fine Print

    Those "perks" offered by credit card companies usually come with strings attached, and these are just a few of them.
  6. Credit & Loans

    Should You Close Your Credit Card?

    Find out the consequences before deciding to end your credit agreement.
  7. Credit & Loans

    6 Benefits Of Increasing Your Credit Limit

    If you can resist the urge to overspend, then raising your credit limit could benefit you in various ways.
  8. Credit & Loans

    How To Get A Credit Card Despite Bad Credit

    Prepaid credit cards and secured credit cards are both excellent options for getting a credit card despite having a poor credit rating.
  9. Credit & Loans

    Using Your Credit Card To Rebuild Credit

    Responsibly using credit cards is one of the best ways to rebuild a poor credit rating.
  10. Credit & Loans

    A Quick Way to Boost Your Credit Score

    The easiest technique ever for raising your credit score. Why don't more people use it?
RELATED FAQS
  1. Is it possible to have a credit limit that's too high?

    Avoid these pitfalls when working with high credit limits, and learn how to increase your credit score by increasing your ... Read Answer >>
  2. What is the difference between available credit and credit limit?

    Explore the difference between available credit and credit limit and the implications different account balances have on ... Read Answer >>
  3. What is the difference between bad credit and no credit?

    The answer to this question will depend on what information (if any) is found on your credit report, such as any bankruptcy ... Read Answer >>
  4. How will accepting a higher credit card limit affect my credit score?

    Find out if accepting a higher limit on a credit card impacts credit score and how that impact affects one's overall credit ... Read Answer >>
  5. How do secured credit cards help me build my credit score?

    Find out how secured credit cards function and why they can be very useful for those looking to build or rebuild their credit ... Read Answer >>
  6. What are the most common reasons credit limit increase requests are declined?

    Learn about reasons why a request to increase the credit limit on a credit card may be declined, and find out which factors ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center