Credit limit is defined as the maximum amount credit that can be withdrawn as the debt from any financial institution or a bank. Basically it is decided by the financial institution to set its own credit limits and range to which the credit can be provided to a borrower in a specific time period.
Extension of credit limit
Although the amount of money given to any borrower as a debt is fixed and this determined by every company or financial organization depending upon the policies and availability of credit and interest rates. However there are no hard and fast rules for the following of credit limits. Depending upon the limit or provision of credit of a company, the credit limit can be extended to the debtor. This extension is given for a particular line of credit for the debtor.
Examples of credit limit extension
The most obvious examples of the credit limit and their extensions include allowing of the credit card holder by the issuing authority or company to take out more than the allowed limit of credit. In some cases people can even take out all the credit at once. However it is better to observe the limits of credit. There are many benefits of the observing credit limits.
Factors of credit limit
There are many factors behind the determination of credit limit on behalf of the financial company or bank. The most important of these factors include the ability of an individual to make the payments of interest. In addition to this, the credit limit is also dictated on the basis of cash flow in an organization which is lending credit to the debtors. In addition to this, the ability of both the debtor as well as the financial company to repay the debt of credit card is also accounted as a factor in this regard.When the credit limit reaches to an end, it is said to be maxed out. After the credit limit gets maxed out, it can no longer be used for any other activity. It can only be brought to use when the debtor pays off the debt and then it will be enabled to fall below the limit.