Credit limit
Also called: credit line
A credit limit is the maximum balance a card issuer or lender allows on a credit card or other revolving account. The issuer sets it, generally after reviewing your credit history and the income you reported, and can raise or lower it later.
By Beacon · Updated
How it works
When you apply, an issuer generally reviews your credit report and history along with the income you listed on your application. A poor credit history, high balances on other cards or low income can each lead to a lower limit, and some kinds of cards come with small limits. Reviewing your own credit report can show which of these factors may have shaped the offer you received.
Issuers can raise or lower a limit after the account is open, even to the point that no credit is available. When an issuer lowers your limit, it generally must send an adverse action notice that gives the reasons or tells you how to request them. It also cannot charge an over-the-limit fee or a penalty rate for exceeding the new, lower limit until 45 days after giving you notice.
The limit is also the denominator in credit utilization, so a lower limit with the same balance means a higher percentage. CFPB guidance notes that experts advise keeping your use of credit at no more than 30% of your total credit limit, which can also leave some room if a limit is lowered.
Related terms
Sources and further reading
Examples are illustrative and focus on U.S. personal finance. This page is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.