A credit limit is the maximum amount of money that a lender, such as a bank or credit card company, allows a borrower to use on a credit account. This limit is determined based on various factors, including the borrower's credit history, income, and overall financial situation. It helps lenders manage risk and ensures that borrowers do not accumulate debt beyond their ability to repay. When a borrower reaches their credit limit, they cannot make additional purchases until they pay down their balance. Staying within the credit limit is important for maintaining a good credit score, which can affect future borrowing opportunities and interest rates.