What is the purpose of maintaining a Credit Limit?

Maintaining a credit limit serves primarily to manage credit risk for issuers. Credit limits are established by financial institutions to ensure that borrowers do not exceed an amount that they can afford to repay. This is crucial for maintaining the financial health of both the issuer and the borrower. By setting these limits, issuers can assess the risk associated with lending to an individual based on their creditworthiness, payment history, and overall financial behavior.

When a credit limit is enforced, it helps prevent cardholders from accumulating debt beyond their means, promoting responsible borrowing. This risk management strategy not only protects the issuer from potential losses due to defaults but also encourages healthy financial habits among consumers.

In this context, other options do not align with the purpose of maintaining credit limits. Overspending would undermine the fundamental principle of responsible lending, while encouraging increased spending habits would contradict the goal of maintaining financial discipline. Revoking access to credit cards may be a consequence of poor financial behavior, but it is not the primary purpose of setting a credit limit.