KEYTAKEAWAYS
Explore the concept of a Credit Limit, the monetary boundary for credit card use and loan accessibility. Understand its role in financial management and creditworthiness.
CONTENT
DEFINITION
A credit limit signifies the uppermost financial threshold, specified in terms of a dollar amount, that borrowers or credit card holders are prohibited from surpassing. It applies both to credit card usage and to the maximum lending amount extended for loans. For credit cards, the credit limit establishes the highest amount that can be charged to the card, with any spending beyond this limit typically incurring penalties or declined transactions.
In the context of loans, the credit limit reflects the maximum borrowing capacity a borrower can access. Loan applicants are typically granted approval up to this predetermined limit, and any request for a higher amount would necessitate a separate application and credit evaluation.
The credit limit is an essential aspect of managing personal finances and creditworthiness, as it influences credit utilization and affects credit scores.
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