What does Credit limit mean?
The credit limit is the sum of money which can be charged at any one time to an individual’s credit card account. Customer credit scores are largely influenced by the size of the credit limit, and the amount the consumer has already borrowed. If a person has borrowed very little on his or her credit limit, then he or she probably has a high credit score. The lower the credit utilization of an individual, the higher his or her credit score gets.
The credit limit is basically the maximum amount of cash a client can charge on, or withdraw from, a specific credit account, it is the amount of credit a bank or other institution offers to a customer. It is calculated considering multiple variables and it always applies to a single card. Limits are normally determined using the information obtained from the application of the individual seeking credit, or relying on the individual’s credit rating.
Consumers’ credit limits can be raised after they exhibit full and timely repayments. On the other hand, having a high credit limit and also multiple credit lines can hurt an individual’s overall credit rating. In cases like these, any new potential lender will see that the would-be customer has access to a huge amount of debt. This might mean that the person will be unable to repay his or her debts in full in the future. New potential lenders may draw the conclusion that it is not worth investing in the person with high debts, as a result they might not offer the individual an extra source of debt. Credit line is another way credit limit is called.