There are a lot of complicated terms out there in the world of finance. Not many people will ever come across most of them and if they do, not many know what they mean. However, there is one term that everyone should know and that is credit limit. In short, a credit limit is the maximum amount of money a person can borrow from a lender.
How Credit Works
Many people deal with credit every day, mostly in the form of a credit card. So, if you apply for a credit card, or are offered one, then you will be give a credit limit by the lender.
For example, if you are give a credit card with a $10,000 limit, you can spend a maximum amount of $10,000. After you pay off your balance (plus interest), you will be able to go out and continue spending money again.
What Determines Credit Limits?
In terms of securities, a credit limit that is set by a lender works the same way. If you’re the type to always pay your bill in full and on time, then you will be given the luxury of an extended credit line. This means you will be able to spend more than your initial credit limit.
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Bottom Line
Whether you’re interested in buying securities or simply want to know more about credit limits, then this post is your one stop for answers.
A short answer to the question posed in this post is that a credit limit is the amount of money you can spend on your credit card or product. That amount is determined by our lender depending on your credit worthiness. For more posts like this, check out our list of bank guides!
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