Glossary: Credit limit
Credit limit is the maximum amount of credit that a certain financial institution will extend to its costumer. Usually this term is used in two cases:
- a bank extends credit to its costumer,
- a credit card company extends credit on a single credit card.
What does it really mean?
A credit limit is simply the amount of money which a customer (debtor) is allowed to take on a particular line of credit (which is the commitment between a bank and its client).
Actually the second case is rather more often. Here a credit limit is the maximum amount of money that the owner (the cardholder) of the particular credit card can take out on this card. This means he or she can buy goods or services only until reaching such limit. After that the debt must be paid in order to use the credit card again.
The limit itself is based on many factors including the lenders cashflow, the debtors ability to pay his debts etc.
Terms, which can mean the same: credit cap
