Credit Limit

Definition

Credit Limit denotes a quantitative threshold (ceiling) to the amount of credit that can be extended to any particular entity. It is a form of Risk Limit. Hierarchical credit limits figure in an organizations Credit Decisioning structure

Credit Limit Matrix

In practical circumstances credit limits might be set according to schedules, matrices or other schemes that link the amount of the credit limit to observable variables pertaining to the borrower (or other market conditions).

Examples

• In the context of Supply Chain Finance it is the maximum amount of outstanding debts which a factor is prepared to approve with regard to a specific debtor.
• Credit Card or Revolving Credit limits linked to a Credit Rating or Credit Score

See Also

• Limit framework
• Risk Appetite

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