What Does a "Credit Line" Mean on a Credit Card?

Whenever you get a credit card, you essentially enter into a loan agreement in which you determine how much money you borrow from the creditor by making purchases. It is up to the creditor to determine how much money it allows each individual borrower to borrow; this is typically referred to as a credit line or credit limit.

Credit Lines

All credit cards come with a credit limit --- a specific dollar amount the credit card issuer allows the borrower. The card user can then make as many purchases as she desires, as long as the total amount does not exceed the credit limit. For example, if you receive a credit card with a $5,000 credit line, you can purchase up to $5,000 with that card, or have up to a $5,000 balance at any one time.

Determination

Each credit card issuer has its own method for determining how much of a credit line each borrower receives. In general, card issuers use the borrower's income and credit score to make this determination. The higher the person's score and the higher their income, the larger the credit line he is allowed. Also, the credit card issuer can increase or decrease this limit over the lifetime of the credit card, as the borrower's credit score and income fluctuate.

Impact

Your credit card's credit line not only limits how much you can use your card, but also has an impact on your credit score. When you carry a balance on the card, the percentage of debt balance when compared to your credit line is known as a debt-to-utilization ratio. According to Kiplinger, consumers should keep their debt-to- utilization ratio on each card below about 25 percent of the available credit. Any higher than this, and you risk lowering your credit score.

Requests

While your credit card company can increase or decrease your credit line at any time, you can also ask your company for a credit limit increase. If, for example, you'd know that you will soon keep a balance over the 25 percent credit utilization threshold, you can prevent any damage to your credit score by contacting your credit card company and requesting a credit line increase.