Credit limit

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.

Over-the-limit fee

Many creditors will charge an over-the-limit fee as a penalty for anyone who exceeds the available line of credit, should the creditor allow this to occur. The over-the-limit fee is considered to be credit card debt and is an obligation of the consumer to pay just like all other parts of the balance.

Maxed out

A line of credit that has exceeded its limit is said to be maxed out. While the line of credit is maxed out, it cannot be used for any further activity unless the consumer pays off at least some of the debt to enable it to fall below the limit, the creditor agrees to extend the limit, or the creditor allows one or more additional purchases with the charging of an over-the-limit fee.

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Look at other dictionaries:

  • credit limit — noun The maximum amount of credit extended to an individual or business • • • Main Entry: ↑credit * * * credit limit UK US noun [countable] [singular credit limit plural …   Useful english dictionary

  • credit limit — credit ,limit noun count the maximum amount of money that a customer can borrow using a particular credit card account …   Usage of the words and phrases in modern English

  • credit limit — the upper limit of credit that a business will allow a customer to have. Glossary of Business Terms * * * credit limit credit limit ➔ limit1 * * * credit limit UK US noun [C] ► BANKING, FINANCE the maximum amount of money that a bank will allow… …   Financial and business terms

  • 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… …   Investment dictionary

  • credit limit — UK / US noun [countable] Word forms credit limit : singular credit limit plural credit limits the maximum amount of money that a customer can borrow using a particular credit card account …   English dictionary

  • credit limit — / kredɪt ˌlɪmɪt/ noun the largest amount of money which a customer can borrow ♦ he has exceeded his credit limit he has borrowed more money than he is allowed to …   Dictionary of banking and finance

  • credit limit — ➡ credit cards * * * …   Universalium

  • Credit limit —   The maximum that a customer can borrow. Limits can be established so that they relate to only one credit facility, or if the customer has several credit facility lines, then you can construct a hierarchy of limits for the customer. Limits can… …   International financial encyclopaedia

  • credit limit — high amount of money a person may receive on credit; total amount of credit that can be allotted …   English contemporary dictionary

  • credit limit — The maximum amount of *credit offered to a customer. The use of credit limits is a common *internal control over *accounts receivable …   Auditor's dictionary

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