What Does Available Credit Mean?

Introduction

If you use your credit card regularly, you absolutely want to be aware of what your available credit is as you make charges and payments.

Let’s go over available credit’s meaning, how it differs from but relates to your credit limit and what it can do for your credit score.

The Meaning of Available Credit

Available credit is the amount of credit you have available to spend, which is determined by your credit limit minus your current balance.

Let’s say your new card’s credit limit is $1,000 and you charge $100 to it — that means your available credit would be $900. This amount can change throughout the month as you make purchases and payments.

Credit Limit vs. Available Credit

It’s important to understand and be aware of both your credit limit and your available credit.

A credit limit, or credit line, is the maximum amount of credit an issuer extends to a cardmember— it’s the ceiling of what you can spend with your card. Issuers may use multiple criteria to determine your credit limit, including but not limited to your credit score, income, credit history, and payment history.

Available credit, as mentioned above, is the amount of your credit limit that you have available to spend. Your available credit can go up or down, depending on your account activity: the more purchases you make with your card, the less available credit you will have. And the fewer purchases you make — or the more of your balance you pay off — the more credit is available to you.

Keeping tabs on these numbers is an important step in ensuring you don’t spend over your limit. Doing so could lead to purchases being declined, negative impacts on your credit score, increased interest rates, or even losing access to your credit.

Current Balance vs. Available Credit

Along with your available credit, you should also be aware of your current balance. These two are closely related.

Each purchase you make on your credit card adds to your current balance and subtracts from your available credit. Conversely, each payment you make subtracts from your current balance and adds to your available credit.

An easy way to keep track of it is: Current balance is what you have already spent, while available credit is what you can still spend.

How Much Available Credit Should You Have?

In addition to being helpful in terms of financial flexibility, having more available credit helps your credit score.

It all comes down to credit utilization — the ratio of total credit card debt you owe compared to the total credit extended to you.

Your credit utilization ratio is one of the major factors that determines your credit score, and keeping it at 30% or less could be beneficial. The more available credit you have across all your credit cards, the better that ratio looks to lenders.

How to Increase Your Available Credit

There are a few things you can do to increase the available credit on your card.

One way is to pay your balance. Each time you pay down your balance, you open up more credit to use … at least until you use that available credit on another purchase and start the whole process over again.

Another way to increase your available credit is by increasing your credit limit — the higher the credit limit, the more available credit there can be. A credit issuer may offer you an increase or even automatically apply one, assuming good standing with your account such as timely payments, a healthy credit utilization ratio, or even getting a higher-paying job. Or you can contact your issuer and ask for an increase.

A third way to increase your available credit is to get another credit card. Just like a credit line increase, being approved for another card — on top of the card or cards you already have — means more credit at your disposal. However, before you start applying for new cards left and right, be sure to consider the potential impacts that can have on your credit.

Regardless of how you increase your available credit, always remember that you must pay all your debts. The more available credit you have, the more opportunity there is for you to accrue higher debt. So be mindful of how you spend and always have a plan to pay that debt off.

Bottom Line

Now that you know the meaning of available credit, how it relates to other credit concepts and how to increase it, you can decide whether your current available credit aligns with your financial goals.

If you’re looking for a new credit card to increase your overall available credit, see if you pre-qualify for one from Credit One Bank.