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

A new credit card always comes with an initial credit line, which most credit card companies refer to as a credit limit. While a credit line always reflects the maximum balance you can carry, what a credit line consists of, the amount and how a credit card company decides on the amount vary among companies.

With some companies, you can use a credit line only for purchases. However, unlike with a debit or check card that often has a daily spending limit, credit card companies can, but usually do not, limit how much you can spend each day as long as you do not exceed your established credit line. Many credit cards also include a cash advance feature that allows you to use part of your credit line as a short-term loan. A cash advance feature generally has a preset daily withdrawal limit.

According to Bankrate, credit card companies generally use one of three methods to decide on an initial credit line. Some offer cards with preset range limits. For example, a gold card might have a maximum credit line of $2,000 while a platinum card might have a $5,000 maximum. Your credit score and monthly income determine whether you qualify and where your line falls within these limits. Some companies set a credit limit according to your credit score. For instance, a credit score between 600 and 650 might qualify for a $3,000 credit line. Others may have no preset limits, but instead generate a custom credit line after considering your credit score, monthly income and debt-to-income ratio.