What is a credit limit?

A credit limit refers to the maximum amount that a lender, typically a credit card issuer, allows a borrower to charge on their credit card. This limit is determined based on various factors such as the borrower's creditworthiness, income, and overall financial history. When a cardholder reaches this limit, they can no longer make purchases until they either pay down their balance or the issuer increases the limit. Understanding the concept of a credit limit is crucial because it helps consumers manage their spending and avoid accumulating debt beyond their means.

In contrast, the other options refer to different financial concepts. The amount of money a bank will lend for a house pertains to mortgage loans, while the total amount of money earned from investments relates to investment returns. Additionally, the minimum payment required on a credit card defines only a portion of what a borrower must pay each billing cycle; it does not reflect the total borrowing capacity associated with the card itself.