The Truth About Credit Cards

Every credit card comes with a credit limit, which is the amount of money you are allowed to borrow with the card. Exceeding this threshold can result in a variety of negative consequences, from credit damage to embarrassing moments at the checkout counter. For this reason, it's important to understand what can happen when you go over your credit limit, and why it's smart to pay attention to your running balance. 

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What Is a Credit Limit? 

A credit limit is a maximum amount that you can charge on a credit card. As a revolving credit account, there is no predetermined payoff date for the amount you borrow. You can charge up to the credit limit and pay at least the minimum amount due, with any remaining balance shifted over to the next month—with interest added. 

• The credit limit that's attached to your card is determined by the issuer when you apply for the card, and depends on three basic factors: 
• Your credit report and score: Your history with credit is a major factor in the card's credit limit.  
• Your financial circumstances: The issuer also considers your income, existing debt and other financial obligations.
• The credit issuer's internal factors: The credit card issuer may extend higher or lower limits based on how much money it is comfortable lending.