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Credit Limit

Definition of 'Credit Limit'

A credit limit is the maximum amount of borrowing permitted either on a credit card or on a bank overdraft.

A lender sets a credit limit after checking the borrower’s credit report and credit score. The credit limit is set after taking account of the borrowings and credit limits on other cards, and also of the likelihood of default of the borrower.

Credit limits can be varied by the lender at any time, or on request by the borrower.

The difference between the credit limit on a credit card or on an overdraft, and the amount borrowed is called ‘headroom’.

Spending in excess of a credit limit usually results in a default of the terms of the card or of the overdraft, and can result in both fees and additional interest being charged.

Charge cards generally do not have credit limits, as all purchases on charge cards must be cleared and paid in full each month.

Use the links below to locate the term you are looking for. If you can't locate it, please get in touch.

Credit Jargon Starting 'G'

Credit Jargon Starting 'I'

Credit Jargon Starting 'J'

Credit Jargon Starting 'L'

Credit Jargon Starting 'M'

Credit Jargon Starting 'S'

Credit Jargon Starting 'T'

Credit Jargon Starting 'V'

Credit Jargon Starting 'W'

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