What is a credit limit?
submitted by Hans Klopek

Samantha_Bowers_Jtech

A credit limit is the maximum amount of credit that a financial institution (like a bank) or supplier is willing to extend to a customer or company. It functions as a cap to manage risk and make sure the borrower doesn't accumulate too much debt. Companies use credit limits to control their exposure to credit risk. They need to put limits on certain high-risk customers that don't necessarily have the means to make good on loans or other obligations.

terrysoreonsen

It's the highest amount of credit that a company or individual can borrow on a credit account. Companies need to use credit limits to avoid borrowing too much money or accumulating too much debt, which can be risky. It helps them stay within a safe borrowing amount and manage their finances better.

A company may put limits on how much they allow their customers to buy on credit. A business may also put limits on themselves on how much they can purchase on credit, in order to prevent them from racking up a huge debt.

prettymuch

It's like a spending cap on debt. Companies need to use credit limits so they don't spend or borrow more than they can handle, which helps them stay in business and avoid getting into trouble with debt.

Jeh

Credit limits can also be used by the bank as a metric of risk. If the bank can say 75% of their borrowers have a high credit limit, that's a sign that they've got a low risk portfolio, so to speak. If someone wants to invest in a bank, but they see the bank has made a bunch of loans to high credit risk households, that's a big red flag.