What is a credit limit?

A credit limit is the maximum amount you can borrow from lenders, particularly when it comes to credit cards. This limit is determined by the lender based on various factors, including your creditworthiness, income, and credit history. It's important to understand this concept because exceeding your credit limit can result in overdraft fees or denied transactions, as well as potentially negatively impacting your credit score. The credit limit serves as a guideline for responsible borrowing, ensuring that you do not accumulate debt beyond a manageable level.

In contrast, the other options don't accurately define what a credit limit entails. The maximum amount of money you can earn refers to your income potential rather than borrowing capacity. The total amount of debt you owe pertains to your overall financial obligations, not just the borrowing limit established by lenders. The minimum payment required on a credit card is the least amount you must pay to keep the account in good standing, which is separate from the concept of a credit limit itself.