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, the maximum that a credit card company will allow a card holder to borrow at any given point on a specific 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.