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What is Credit Limit?

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Credit limit

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

Banks and credit card companies do provide for overdrawing beyond the credit limit at times based on the cause of overdrawing and also in exchange of some fee.

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.

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Sreya Ray is working as a Manager at State Bank of India. She is a voracious reader and a passionate writer. Her life is complete with her daughter and the support of her husband and the inspiration of her parents. Sreya loves multi-tasking and is a dreamer. If she don't create anything on a day,She feels that she had wasted my day.

2 COMMENTS

  1. I didn’t know that banks could charge me fees if I don’t use all of my credit limit – that is so good to know. But it’s just another way that banks can charge you fees. Why must banks be so greedy? It’s like they’ll use any excuse to get money from you… Sometimes I just feel like I should withdraw all my money and keep it under my mattress. But then, it’s just as likely to get taken from under my mattress, or completely lose value.

  2. Credit limit has different meaning for a creditor and a bank. In case of a creditor, it is the maximum amount one can avail from a creditor. The creditors must take into consideration the income, age, credit rating, liabilities and purpose of taking credit of the applicant. Credit limit by banks is the maximum amount one can withdraw from his bank account, even more than the deposits with a small charge. One should know his credit limit and wisely decides it.

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