how a credit limit works
a credit limit is the maximum amount of money a lender will allow you to spend using a particular credit card or revolving line of credit lenders set those limits based on several factors including your credit score personal income and loan repayment history lenders generally offer higher limits to borrowers they view as lower risks 1credit limits can apply to both secured and unsecured credit if the line of credit is secured or backed by collateral the lender takes the value of the collateral into account and may offer a higher limit for example if you take out a home equity line of credit heloc your credit limit will be based in part on the equity in your home 2lenders will generally issue higher credit limits to creditors they consider to be lower risk and put lower credit limits on riskier borrowers a credit limit works the same way regardless of whether you have a credit card or a line of credit you can spend up to the credit limit if you exceed the credit limit you may face fines or penalties on top of your regular payment if the you spend less than the limit you can continue to use the card or line of credit until you reach the limit a downside to high credit limits is that they can potentially lead to overspending to the point where you cannot afford your monthly payments credit limit vs available credita credit limit and available credit are not the same the credit limit is the total amount you can borrow whereas available credit is the amount that is remaining for you to use including if you carry a balance for example if you have a credit card with a 1 000 credit limit and you charge 600 you have an additional 400 to spend if you make a 40 payment your balance would fall to 560 and you would then have 440 in available credit 