Credit limit
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A credit limit is the maximum amount of credit that a financial institution or other lender extends to a debtor on a particular credit card or line of credit.
Modern limits evolved from early department store charge accounts and the first bank-issued cards of the 1950s, including Bank of America's 1958 BankAmericard pilot in Fresno, California, and the Interbank cooperative formed in 1966. Lenders generally set limits based on specific information about credit-seeking applicants, including income and employment status. Credit limits play an influential role on a consumers' credit scores and their eligibility to obtain future credit.
Credit limits affect credit scores primarily through credit utilization as the percentage of available credit consumed. Credit scoring models like FICO and VantageScore weigh utilization heavily — around 30% of the total score — with lower utilization ratios below 30% generally resulting in better scores, and the best scores typically associated with utilization under 10%.
A line of credit that has reached or exceeded its limit is considered maxed out. When maxed out, the line of credit cannot be used for any further activity unless the consumer pays off at least some of the debt to enable it to fall below the limit, the creditor agrees to extend the limit, or the creditor allows one or more additional purchases with the charging of an over-the-limit fee.
Oversight expanded after Congress amended the Truth in Lending Act in 1968 and the Credit Card Accountability Responsibility and Disclosure Act of 2009 curbed over-limit fees. Total credit lines across U.S. consumer cards surpassed $5 trillion in 2022, and growth since the pandemic has been concentrated among borrowers who qualify for the largest limits.