Credit Limit or Credit Line

Credit limit or credit line summary:

• When you're approved for credit, you can't just withdraw or charge as much as you like. Your lender decides how much money you'll get access to, depending on your income, credit score, and other factors. 

• With a credit card, you get a credit limit; for a HELOC or a PLOC, you have a credit line.

• In both cases, you draw against your credit as needed and make payments as required according to the agreement with the creditor. This type of arrangement is called revolving credit.

Credit Limit or Credit Line Definition and Meaning

Your credit limit or credit line is the amount of borrowing you're allowed under your credit card, HELOC, or personal line of credit agreement. Your credit limit or credit line is dependent on factors like your amount of home equity (for a HELOC), your creditworthiness, and income. If you exceed your limit, your transaction could be declined or you could be charged a fee. 

Types of Credit Limit or Credit Line

Credit limits or lines are a feature of revolving accounts. They're revolving because you can use them again and again. 

Credit card

There is no defined draw period for a credit card. As long as your account is in good standing, you can spend against your credit limit, make payments as required, and spend again as often as you want. 

Your credit limit can change. An increase gives you more spending flexibility, and you can request one via your card issuer’s website or by phone. An issuer may choose to decrease your credit limit (with notice) if you don’t use the card much or your credit profile deteriorates, to prevent you from spending more than you can pay back. 

Home equity line of credit

A HELOC is secured by your home and the credit line is based on the amount of equity in your home (your home’s current value minus what you still owe on your mortgage).

HELOCs have two parts—a drawing phase and a repayment phase. During the drawing phase, which might be five years for a 15-year HELOC, you're only required to pay the interest due and you can tap the credit line as needed. During the repayment phase, which might last 10 years, you can no longer access the credit line and must make monthly payments to zero your balance.

Personal line of credit

A personal line of credit comes from a bank and can be secured or unsecured. As with a credit card or HELOC, you have a set credit line you can spend from and repay. It can be harder to qualify for than a personal loan (which is disbursed as a lump sum of money and repaid in regular installments).  

Credit Limit or Credit Line and Your Credit Score

Credit scoring models pay close attention to the percentage of revolving credit that you use. In fact, only payment history has more weight in credit scoring. If you avoid carrying balances, your utilization will stay low. You can reduce utilization by paying down revolving balances, asking lenders to raise your credit limits (without using the extra), or opening up more credit (and not using it).