Credit Limit

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Definition of 'Credit Limit'

A credit limit is the maximum amount of money that a lender will allow a borrower to charge on a credit card or other revolving credit account. Credit limits are typically set based on the borrower's creditworthiness, which is determined by factors such as their income, debt, and credit history.

Credit limits can be important for several reasons. First, they help borrowers to manage their spending by setting a clear limit on how much they can charge. This can help to prevent borrowers from overspending and getting into debt. Second, credit limits can help to protect borrowers' credit scores. If a borrower exceeds their credit limit, it can damage their credit score, making it more difficult to get approved for loans in the future.

There are a few things to keep in mind when considering a credit limit. First, it is important to make sure that the limit is high enough to meet your needs. If the limit is too low, you may find yourself having to make multiple payments each month or carrying a balance from month to month. Second, it is important to be aware of the consequences of exceeding your credit limit. As mentioned above, exceeding your credit limit can damage your credit score. It can also lead to fees and penalties from your lender.

If you are considering applying for a credit card or other revolving credit account, it is important to understand how credit limits work. By understanding your credit limit and how it can affect your finances, you can make informed decisions about your credit card use.

In addition to the factors mentioned above, credit limits can also be affected by other factors, such as the type of credit card you have and your relationship with your lender. For example, some credit cards have higher credit limits than others. Additionally, lenders may be more willing to increase your credit limit if you have a good payment history and a long relationship with the lender.

If you are interested in increasing your credit limit, you can contact your lender and ask to have it increased. However, it is important to note that lenders are not obligated to increase your credit limit. Additionally, some lenders may charge a fee to increase your credit limit.

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