If you’re a new credit cardholder, you’re likely wondering, “what does available credit mean?” Available credit is the amount of your credit limit you can use in a billing cycle. As your balance changes, this amount will also change. For example, if your credit limit is $0, you have no credit available for purchases and have reached your credit limit. Knowing how much credit you have available is essential for maintaining your account and your credit score.
Difference between credit limit vs. available credit
The amount of credit you can spend or borrow is known as the credit limit. After all your purchases and fees are deducted from the credit limit, the remaining balance is your available credit to spend. After that, any payments you make are deducted from your credit card balance and applied as a credit to your account, freeing up more credit.
How much available credit should you use?
The best way to avoid paying interest on your purchases is to pay your credit card balance in full each month. However, that’s not always feasible. Experts recommend using no more than 30 percent of your total available credit, especially if you want to maintain good credit. For example, if your credit limit is $500, you should aim to spend no more than $150.
What happens when you reach the credit limit?
When you reach your credit limit, you have no more available credit to spend. Your credit card is “maxed out,” and the company can decline charges if you try to use it without making a payment to lower the balance.
What happens if you use more than your available credit?
The credit card company can add on late fees and penalties if you exceed your credit limit. In addition to the fees, it’ll harm your credit score. In some cases, the credit card company may even decide to close your account.
How to increase your available credit
Increasing your available credit limit frees up funds for spending. In addition, it can raise your credit score by lowering your credit utilization ratio (the percentage of credit used versus your credit limit). Here are some ways to increase your available credit.
Pay down your existing balance
If you pay off your credit card balance in full, you’ll have access to your entire credit limit. However, only making the minimum payment can keep your balance high and reduce your available credit. Conversely, you can reduce your balance faster if you pay more than the monthly minimum.
Get a new credit card
Taking out another credit card gives you access to more available credit. If you only have one credit card, the additional line of credit can help improve your credit utilization ratio. You’ll have the entire available limit factored into your overall credit utilization, which can boost your score and offset the hard credit inquiry’s impact.
Ask for a credit limit increase
If you have a history of making your credit card payments on time and keeping your account in good standing, you can ask the credit card company for a credit limit increase. This is often the easiest way to increase your available credit limit instantly. Credit card companies have different procedures for making requests. Some may allow you to do it directly on the website, while others require you to call in to complete the request.
Credit Limit – Current Balance = Available Credit
To recap, your available credit is your credit limit minus the current balance. Whenever your balance changes, this amount will change too. If you make a payment, your available credit increases. When you make a purchase, your available credit decreases.
Can I spend my available credit?
Yes, you can spend your available credit. The available credit is the amount of money you can charge on your credit card.
How can I check the available balance on my credit card?
You can check your available balance on your credit card by logging into your credit card account or by calling the credit card company.
What does 100 percent credit available mean?
100 percent credit available means your available credit equals your entire credit limit. You have either paid the balance in full and have access to your full line of credit or have not yet used the card.