Your available credit and the total credit limit on a particular credit card are both tied to the potential amount that you can spend, but they differ in a few key areas. Your credit limit is the total amount of credit that the card issuer is willing to lend you. On the other hand, your available credit is the potential amount you can spend right now.
Unlike your credit limit, your available credit takes into consideration your outstanding balance and any pending charges. So, for example, if your total credit limit is $10,000, and you have an outstanding balance of $2,000, then your available credit is $8,000.
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What Is Available Credit?
Your available credit on a credit card is the total amount that you can spend on your credit card. It is usually calculated as the total credit limit minus any outstanding balance or pending charges. If you attempt a transaction that is larger than your available credit, the credit card company will typically decline the transaction.
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What Is a Credit Limit?
The way most credit cards work is that the credit card company issues you a maximum amount that they are willing to lend you. This is called your credit limit. It is usually determined by your financial information, such as your credit score, income, and other items on your credit history.
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Why Is Available Credit Important?
Your available credit is one of the most important things about your credit card. The amount of available credit you have is the total amount of money that you can spend on your credit card. If you try to make a purchase that’s more than your total available credit, your credit card company will usually decline your transaction.
Differences Between Credit Limit and Available Credit
The main difference between credit limit and available credit is one of a theoretical limit vs. a limit in practice.
Your credit limit is the theoretical limit that represents how much the credit card company is willing to lend you. If you’ve used a portion of your credit limit, then that amount is subtracted from your total credit limit and becomes your available credit. This is the maximum amount that you can spend right now on your credit card.
In other words, your credit limit will generally remain the same, whereas your available credit will vary based on your spending. When you haven’t spent any money using your credit card, meaning your balance is $0, your credit limit and available credit are the same.
What Happens If You Go Over Your Available Credit?
If you have a credit card balance or outstanding pending charges on your credit card, those amounts are subtracted from the total credit limit that you have on that card. This marks your current available credit, and it’s the maximum amount that you can charge on your credit card at the current point in time.
If you try to make a charge for more than your available credit, it’s likely that your credit card company will decline the charge. With some credit card companies or specific credit cards, it’s possible that the credit card company will allow a charge above your available credit, but they may charge additional fees and/or interest. Check with your credit card company for the specific rules and terms for your particular card.
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What Happens If You Go Over Your Credit Limit?
If you continue to spend all of your available credit until you’ve reached your total credit limit, you may not be able to continue to use your credit card. You’ll first need to make payments to lower your total balance and raise your available credit.
In some cases, if you continue to keep your outstanding balance near your total credit limit, the credit card company may choose to close your credit card account. If this doesn’t happen, your card issuer may also increase your interest rate, lower your credit limit, or even raise the minimum payment requested.
Going over your credit limit can also have serious implications for your credit score. This is because credit utilization — how much of your available credit you’re currently using — is a major factor used to determine your score. It’s recommended to keep your credit utilization below 30% to maintain a healthy score; if you’ve reached your credit limit, your utilization will be at 100%.
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How to Increase Your Available Credit
The best way to increase the available credit on your credit card is to spend less on your card and make additional payments toward your total outstanding balance. Every dollar that you pay toward your outstanding balance will increase your available credit.
Ideally, you’d get to a situation where you’d pay off your statement balance in full, each and every month. In that scenario, your available credit and your total credit limit would be equal.
How to Increase Your Credit Limit
You have a few options for increasing credit limit. Some credit card companies will regularly review the accounts of their cardmembers, and proactively increase their credit limits.
You also have the option to contact your card issuer directly and ask them to increase your credit limit. Keep in mind that most issuers are more likely to increase your credit limit if you’re already using your credit card responsibly.
If you’re not having any luck increasing the credit limit on your existing credit card, another option is to open a new credit card. This could substantially increase your available credit if you’re approved — especially if the new card’s limit is at or above the average credit card limit.
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The Takeaway
Your total credit limit and available credit are two terms that refer to the amount of money that you can spend on your credit card. However, there is a difference between credit limit and available credit. Your credit limit usually refers to the maximum amount that your card’s issuer is willing to lend you. Meanwhile, your available credit is the maximum credit limit, minus any outstanding balance or pending charges on the card.
If you’re looking to increase your credit limit, another way to do so is by opening a new credit card.
The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1
FAQ
Why is my available credit less than my credit limit?
Your available credit will often be less than your credit limit based on any outstanding balance or pending charges that you have on your credit card. If you have a total credit limit of $7,500 on a particular card, and an outstanding balance of $1,000, then your available credit is $6,500. The available credit amount is the maximum amount that you can charge on your credit card at the current moment.
Why is my available credit higher than my credit limit?
It’s rare that your available credit will be higher than your total credit limit. Instead, it’s much more common for your available credit to be less than (or equal to) your total credit limit. One scenario where your available credit may be higher is if you have a credit on your account, such as from a refunded transaction.
How is my credit limit determined?
Credit card issuers typically determine your total credit limit based on the financial information that you provide when you apply for the card. This includes your employment information, salary, and overall creditworthiness. If your financial situation has materially changed since you first applied, or if you have a history of responsibly using your card, you may be able to contact your issuer and have your credit limit increased.
What is a good amount of available credit?
Experian reported that in 2020, the average credit card limit was just over $30,000, though credit limits vary widely by card issuer, credit card, and individual. A good amount of available credit is one that allows you to make all of the transactions that you need to make each month, with a little bit of buffer room. You should aim to put yourself into a financial position where you can pay off each of your credit card statements in full, each and every month.
Photo credit: iStock/Georgii Boronin
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