A credit limit is the explicit borrowing ceiling set by a lender for a particular customer. The credit facility having a credit limit can take many forms, both secured and unsecured. The line of credit, letter of credit, and credit card all have a credit limit. An example of secured debt would be the home equity line of credit, or HELOC, where the credit limit decision would take into account the amount of home equity accumulated. On the other hand, the credit limit on a credit card, which is unsecured, would be based entirely upon creditworthiness. The creditor can raise or low the credit limit at its sole discretion. One exception relates to Regulation U, a Federal Reserve rule that limits the credit limit a customer can be offered to buy securities on margin. |
