Credit limit
Also called Credit line
The maximum amount a lender lets you borrow on a credit card or line of credit at one time.
What it means
A credit limit is set by the lender based on factors like income, existing debts and credit history. Once your balance reaches the limit, new purchases may be declined, or, if you have opted in to over-limit coverage, allowed with a fee. As you pay down the balance, the available credit opens up again.
Lenders can raise limits automatically, approve increases on request, or lower them, sometimes with little notice, if your risk profile or economic conditions change. A higher limit can lower your credit utilization, but only if spending does not rise along with it. Requesting an increase may trigger a hard inquiry at some lenders, so it helps to ask first.
Example
For example, a card with a $10,000 limit and a $2,500 balance has 25% utilization. If the limit rises to $15,000 while the balance stays the same, utilization falls to about 17%.
How it’s used
- Making a large purchase on a card
- Lowering credit utilization
- Understanding why a card was declined
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.