Put simply, available credit on a credit card is how much money a cardholder has left to spend in a billing cycle. Being aware of your available credit is key to ensuring you don’t spend beyond your credit limit. Doing so can lead to having a purchase declined or facing penalties, such as a higher interest rate.
Once you know what available credit means, however, you may find that you have further questions. How much available credit should you have? How can you check your available credit? And are there any ways to increase your available credit?
What Is Available Credit on a Credit Card?
Available credit is the amount of money that’s left on a cardholder’s account in the current billing cycle. As a cardholder uses their credit card, the purchase amounts are deducted from their credit limit, which is the maximum amount a cardholder can spend on the card. The remaining amount is what’s known as available credit.
Credit card companies recalculate your available credit every time you make a purchase and when you make a card payment. When you buy something with your credit card, your available payment falls, whereas your available credit rises when you make a payment. One of the key differences between available credit and credit limit is that your credit limit will remain the same, regardless of your spending or payments.
The Importance of Having Available Credit
Knowing your available credit can have a significant impact on your credit card experience. The more available credit you have, the more you can spend on your card. If your available credit is low, you’ll know that you’re nearing your credit limit.
When you aren’t aware of whether you have available credit, the following scenarios can become a reality depending on how your credit card works:
• You could have a purchase declined if you don’t have the available credit to cover it.
• You could incur an interest rate penalty, meaning your rate will go up.
• You could owe an over-limit fee.
• Your credit card issuer could lower your credit limit, or even close your account after multiple overages.
How to Check Your Available Credit
Cardholders can easily check their available credit in the following ways:
• On their monthly credit card statement
• Via the credit card company’s app or website, listed under “accounts”
• By calling their credit card issuer through the number on the back of their card
Calculating available credit is also fairly straightforward. All a cardholder has to do is subtract their current credit card balance from the account’s total credit limit. In other words, the formula is: credit limit – current balance = available credit.
Make sure to factor in all card-related costs when making this calculation, account fees and interest charges, which will apply if you’re carrying a balance on a credit card.
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How Much Available Credit Does It Make Sense to Use?
It’s recommended that credit card users regularly check their credit card balance and refrain from overspending in order to maintain a lower credit utilization rate. This rate reflects how much of their overall credit limit they’re using at a given time.
Credit utilization is not only important for household budget considerations — it also impacts credit score. The lower the credit card utilization rate, the better for a cardholder’s credit score. Aim to maintain a credit-to-debt ratio of no more than 30%, meaning the cardholder has 70% of their available credit remaining on the card account.
Tips for Increasing Your Available Credit
Cardholders looking to boost their available credit can leverage several action steps to get the job done.
Pay Down Your Card Balances
Perhaps the most efficient way to boost your available credit — short of not using the card at all — is to make regular payments. This will keep your credit card debt as low as possible.
For maximum results, pay as much as your household budget allows each month toward your credit card balance rather than only making the minimum payment. Done regularly, this will help to keep your credit card debt down and your available credit up.
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Request a Credit Limit Increase
Technically, asking for — and getting — a credit limit increase from your credit card company will also boost your available credit. You’ll need good credit and a solid credit card payment history to gain approval from your credit card company though. Also note that the request for a credit limit hike will also lead to a hard credit check, which could negatively impact your credit score.
Once you get approved for a credit limit boost, resist the temptation to overspend now that you have a higher credit limit. To be safe, don’t ask for a credit limit boost unless you’re able to pay off your current balance. That’s a good sign you can handle any potential added credit card debt.
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Get a New Credit Card
As long as you’ve done a good job of making timely debt payments and have maintained a stellar credit score, you stand a chance of getting approved for a new credit card with a higher credit limit.
If your new credit card doesn’t offer a higher credit limit, you’ll still benefit from the available credit earned from the new card.
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Knowing how much available credit you have on a credit card clues you in to how much you still have available to spend. However, you’ll want to avoid using the entirety of your credit limit — meaning whittling your available credit down to $0 — due to the consequences that can have. Not only could that result in a declined credit card or a hiked interest rate, a high credit utilization rate can have implications for your credit score.
How much available credit should I have?
A good rule of thumb is to have at least 70% of your credit limit available. That will allow you to maintain a credit utilization rate of 30%, which can help you to avoid negative impacts to your credit score.
What does available credit mean on a credit report?
Available credit on a credit report means the amount of credit available to a consumer relative to their outstanding debt. Lenders and creditors want to see consumers with high available credit and low debt balances, as this shows responsible borrowing habits.
Is available credit the amount I can spend?
Yes, available credit is the amount of credit available to a cardholder that they can use.
Why is my available credit low?
Low available credit means you’ve used a large portion of your credit limit. You might aim to spend less in the future to maintain a lower credit utilization rate. In the meantime, keep a close eye on your spending to avoid hitting your credit limit, which can have negative consequences.
Photo credit: iStock/Ridofranz
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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