Credit Limit

A credit limit is the maximum amount of credit that a lender will extend to you, which varies from lender to lender depending on their risk appetite.

A credit limit is based on a variety of factors ranging from an individual`s ability to meet payments as they fall due, an organisation`s cashflow and ability ultimately to repay the principal sum lent, 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 credit 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 application by the cardholder or offered by the card issuer.

Also see Overdraft Limit

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