What is meant by 'credit limit'?

The term 'credit limit' refers to the highest amount that can be charged on a credit account. This is an important concept in personal finance as it sets a boundary for how much credit a borrower can access on a revolving credit account, such as credit cards. Understanding your credit limit is crucial for managing your spending and maintaining a healthy credit score. Exceeding this limit can lead to over-limit fees and potential penalties, as well as negatively impacting your credit report.

In this context, while the maximum amount of capital that can be borrowed and other related financial terms might be relevant in different scenarios, they do not specifically define the limit on credit usage as directly reflects the constraints placed on a credit account. The credit limit ensures that borrowers do not take on more debt than they can handle, promoting responsible credit usage.