A credit limit is the maximum amount you are allowed to borrow or charge on a credit account. It is set by the lender based on your creditworthiness — income, credit score, repayment history, and existing debts.
For example, if your credit card has a limit of $10,000 you can spend up to that amount. Once you hit the limit, no more purchases are allowed until you make a payment and free up available credit.
For businesses, credit limits apply to trade credit from suppliers and lines of credit from banks. Higher limits provide more flexibility but also more temptation to over-leverage.