Credit limit is the maximum amount that one can avail from a creditor or the maximum that one can overdraw from his account.
The credit limit that one is granted varies from creditor to creditor and in general the following details about the borrower is taken into account while determining the quantum of credit limits that he can be granted :
- The credit history or the credit rating of the applicant
- The age of the applicant
- The annual income of the applicant
- The existing liabilities of the applicant
- The net worth of the applicant
- The purpose of availing the credit.
Credit Limit by Banks
At times, Banks even charge from their borrowers if they don’t utilize the whole of their credit limits for a minimum number of days in a year and in some cases , may even reduce the credit limit if it is not utilized fully.
This is because they are not able to utilize productively the limit of credit allocated to their customers. So , it is always prudent to carefully determine the credit limits that one requires.