Credit Limit Law and Legal Definition
The maximum amount that a customer can borrow or a bank extends for a particular line of credit is the credit limit. The term is used in reference to revolving accounts. For example, credit cards and home equity lines of credit. In common usage credit limit is the upper limit amount which a bank will allow a card holder to take out at once on a card. Credit limit is fixed in consideration of customer’s credit history, income, debt, assets and equity. Credit limit depends on:
customer’s ability to make interest payments;
Bank’s cash flow;
ability to repay the principal to the credit standards employed by the lender; and
borrower's recoverable assets in the event of default.
