What is a credit limit?

A credit limit refers to the maximum amount of credit that a lender is willing to extend to a borrower, typically in relation to a credit card or personal loan. This limit represents the total amount of funds available for the borrower to use. For credit cards, it is particularly significant because it can directly influence spending behavior; exceeding this limit often results in penalties or declined transactions. Understanding this concept is crucial for managing credit responsibly, as it helps borrowers formulate budgets and avoid overspending.

The other options relate to different aspects of credit management but do not define what a credit limit is. The interest rate is important for calculating the cost of borrowing but does not indicate how much can be borrowed. The minimum payment is a requirement set by the lender for repayment but again does not pertain to how much credit is available. Finally, the total debt across all credit accounts gives a broader picture of a borrower's financial situation, but it does not specifically define the borrowing capacity granted by a lender for a single credit account.