Credit line vs credit limit

A credit line or line of credit is a predefined limit up to which a customer can borrow from a financial institution. The money up till the credit line can be borrowed and repaid at any point in time. The line of credit can be secured by staking collateral or unsecured. Unsecured credit lines tend to have higher interest rates. Interest is charged on the amount used from the available line of credit. The repayment can be done on a monthly basis or all together at once.

The credit limit is the maximum amount a borrower can avail. Credit limits are extended on the credit line. Lenders set the credit limit for borrowers based on their credit report. High risk or low credit score borrowers are provided with a lower credit limit than low risk or high credit score borrowers.

Points to remember:

  • A Line of credit is open-ended, implying that spending and repaying money is cyclic. While it offers flexibility, it can also lead to over expenditure. 
  • Exceeding your credit limit affects the credit score since it implies severe repayment inability and overextended debts.
Related Terms
Interest Rate
Credit Report
Credit Line
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