Credit Score vs Credit Limit: Difference and Comparison

Credit Score and Credit Limit are two terms that are used in the banking sector. A credit Score is a numerical score given to a person according to their credits in the respective bank.

A credit limit is the maximum amount of money credited to a person in debt by keeping his line of credit in mind. Both these terms are used to extend credits in terms of customer loans.

Key Takeaways

  1. A credit score is a numerical representation of a person’s creditworthiness based on credit history and financial behavior; a credit limit is the maximum amount a person can borrow from a lender or spend using a credit card.
  2. Lenders use credit scores to determine creditworthiness and interest rates; credit limits are set by lenders based on factors such as income, credit history, and credit score.
  3. A higher credit score can lead to better credit terms and higher credit limits, while a lower score may result in less favorable terms and lower credit limits.

Credit Score vs Credit Limit

A credit score is a numerical representation of a person’s creditworthiness, based on their credit history and current credit status. A credit limit is the maximum amount of credit that a financial institution or other lender will extend to a debtor for a particular line of credit.

Credit Score vs Credit Limit
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Credit Score is a parameter to understand the creditworthiness of a customer. This score gives the lenders/credit card companies an idea of the secureness they can have if they lend the customer cash.

Different credit score levels are maintained to qualify for other loan claims.

A credit limit is a parameter to understand the capability of a credit receiver. If a certain amount is lent to a customer, the resources available to him are checked beforehand so that the lender will not have to face a loss in the future.

A line of credit is maintained; if crossed, no more credits can be given to the debtor.


 

Comparison Table

Parameter of ComparisonCredit ScoreCredit Limit
DefinitionA credit Score is a numerical score given according to your wealth.Credit Limit is a stake to provide a loan according to a person’s security.
ImpactCredit scores play a significant role in altering the credit limit. If the credit limit gets low, credit scores go down.Credit limits can get affected by credit scores. If credit scores are high, credit limits can rise.
Debit alterationsThe credit score is unaffected when an account gets debited with personal earnings.When an account is debited with money, no changes happen to the credit limit.
Zero alterationsWhen the credit score is zero, the creditors cannot identify your repayment potential. So you should have a history of repayment for them to analyze.When the credit limit is zero, no more credits can be given to the account, and hence no repayment is necessary to get more recognition.
Fixed SecuritiesA credit score is not affected by assets, but you may need them while you purchase a credit card.Assets are backbones to credit limits and can improve the praise you get from a lender.

 

What is Credit Score?

Credit Score in India is a system for ranking customers according to the creditworthiness of their accounts. The ranking system in India is between 300-900 points.

A person is awarded these points according to the credit history he has. A credit report is critical in determining an individual’s credit score.

A person’s credit score can determine the financial condition of this individual. It helps the lenders to know more about the person, and they can decide the amount of loan that can be allotted to the person.

Also, they get to know the revenue they can get back by lending them money; the credit score is utilized wherever the credit system is applicable.

Usually, people use credit cards for mobile transactions.  If you have a credit score below 300, your chances of getting a loan are low; if you have one above 900, you will likely get the applied loan.

credit score
 

What is Credit Limit?

Credit limit means the maximum amount of money that can be lent to a person according to the line of credit he maintains.

When no more credit can be given to this person, their credit limit has been exceeded, and to get more recognition, they should repay some of the previous debts.

A person’s credit limit is based on many factors, such as income, security, and credit history. These proofs show how much money a person can repay with what they earn.

If the credit limit gets maxed out, sometimes the lender allows getting credits 1-2 times.

This is purely for non-electronic relations, and this opportunity is not provided for transactions from credit cards. Lenders can set up the credit limit of individuals.

According to their evaluation, lenders classify them into high-risk and low-risk borrowers. They give high-risk borrowers low credit due to the risk involved and vice-versa.

credit limit

Main Differences Between Credit Scores and Credit Limit

  1. A credit score is a numerical rating given to an individual according to his credit history. A credit limit is a maximum credit that can be provided to a person according to his credit history.
  2. The lender cannot understand your credit history if the credit score is zero. If the credit limit is zero, no more credit is allotted to you.
  3. Fixed securities and assets can only help you get a credit card and don’t play many roles in altering credit scores. But if you have support, your credit limit can get changed.
  4. The person will likely get a loan when the credit score maximum is more significant than 900. If the credit limit has maxed out, no more credit can be allotted to a person.
  5. When credit score changes according to external factors, the individual can alter the credit limit by adjusting the money spent.
Difference Between Credit Score and Credit Limit
References
  1. https://www-2.rotman.utoronto.ca/facbios/file/creditlimit.pdf
  2. https://eprints.soton.ac.uk/71324/01/CORMSIS-09-09.pdf

Last Updated : 11 June, 2023

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