A credit limit is the maximum amount of money that a credit card issuer or lender allows a borrower to borrow or spend using a credit card or a line of credit. It serves as a cap on the total amount of credit that can be used by an individual or business. The credit limit is determined based on various factors such as the borrower's credit history, income, and creditworthiness. Exceeding the credit limit may result in penalties, fees, and potentially negative impacts on the borrower's credit score.
In addition, the credit limit can be adjusted periodically by the credit card issuer or lender based on the borrower's financial situation and creditworthiness. If a borrower consistently demonstrates responsible credit usage and makes timely payments, they may be eligible for a higher credit limit. Conversely, if a borrower demonstrates irresponsible credit behavior or has a decrease in income, the credit limit may be reduced. It's important for borrowers to understand their credit limit and manage their credit usage wisely to maintain a good credit standing.