Limit

Meaning: 

Credit Limit:

Refers to the maximum borrowing capacity allowed on a credit card or through an overdraft facility.

Debit Limit:

Indicates the maximum withdrawal or transfer amount permitted from a bank account.

Importance in Finance:

Limits play a critical role in preventing overspending and promoting responsible financial management.

They help financial institutions manage risk and can significantly impact an individual's creditworthiness and credit score.  

Good Financial Practice:

It is advisable to keep credit utilization below 30 percent of the total limit to maintain a favorable credit score and demonstrate responsible borrowing behavior.

Role in Business:

Businesses are assigned credit limits to facilitate the purchase of goods, manage inventory effectively, and ensure smooth cash flow, especially during periods of financial constraints.