Available credit is how much you can still use for purchases. Use it sparingly to avoid expensive debt and credit damage.
Read on to learn how available balance is determined and how much you need to successfully manage your debt.
What does available credit mean?
When it comes to credit cards, there are quite a few terms that might seem like they mean the same thing. To eliminate any confusion, let’s dig into these terms and see how they’re different – and how they’re connected.
Total credit line vs. available credit vs. current balance
“A lot of terms get thrown around when it comes to credit,” says Grey Idol, co-founder of Payroll Funding. “Current balance refers to how much you’ve already borrowed, available credit is what you’re able to borrow going forward and the credit limit is the maximum the creditor will let you borrow in total.”
See related: Statement balance vs. current balance?
Simply put, your available credit is the difference between your credit limit and your current balance. For example, if your credit line is $1,500 and you have a $500 balance, your available credit is $1,000; this is the money you can still use on purchases.
Why don’t I have available credit after payment?
Most of the time, when you pay down your balance, you won’t see changes to your available credit right away. It takes time for a payment to be processed and posted on your account – typically, one to three business days. If you’ve mailed your payment, the process can take longer, and the time frame will depend on mail delivery and time at the payment processing center.
However, there might be a different reason you have no available credit.
“For example, it’s possible your card issuer placed a temporary hold on your credit due to your exceeding your credit limit, making consistent late payments, missing payments or having a payment bounce,” explains Andrew Chen, founder of the personal finance website Hack Your Wealth. “Additionally, your issuer may place a hold on your credit if you make a large payment that is unusual compared to your normal payment history.”
To avoid that, make sure you always pay on time and stay under your credit limit. This will help your relationship with your credit card issuer, as well as your credit overall.
If you have questions about your available credit or pending payments, contact your credit card issuer by calling the number on the back of your card.
How much available credit should I have?
There’s no universal answer on how much you should have in available credit. The amount depends on your lifestyle and financial situation, especially your capacity to repay debt.
That said, it’s always best to keep as much available credit as possible. Even if you have a sound plan for repaying your credit card debt, more available credit provides more budget flexibility. For instance, if you find yourself in an urgent situation your emergency fund can’t cover, or your income has unexpectedly decreased, your available credit can become your financial cushion.
At the same time, avoid applying for too much credit just to have it available. This could raise lenders’ concerns and prevent them from working with you next time you apply.
Does available credit affect my credit score?
Just because you have credit available doesn’t mean you should use it all. In fact, if you use it sparingly, you might look more reliable to creditors and lenders. Borrowers who tend to carry a high balance or max out their credit cards can be considered risky, and their credit scores might reflect that.
Your credit utilization ratio, or how much credit you’re using relative to your credit limit, is the second most influential credit scoring factor. It’s generally recommended to use less than 30% of your credit, but keeping the ratio in single digits is ideal.
For instance, if your credit limit is $10,000, avoid having a balance higher than $3,000 – or better, aim for less than $1,000.
“Low credit utilization is viewed favorably by credit rating agencies because it tends to indicate responsible rather than desperate use of credit, as well as spending within your means,” Chen says. “For this reason, it is highly beneficial to you as a borrower to have a large amount of available credit … This will make your credit utilization appear low, which in turn will increase your credit score.”
How to make your available credit help your credit score
To make sure your credit utilization is reported low, try to keep as much in available credit as you can. Keep track of your spending and payments and request a credit limit increase every year to boost your credit line.
Freya Kuka, personal finance expert and founder of Collecting Cents, offers her favorite tip on keeping your credit utilization low: Focus on the day your issuer reports your payment history to the bureaus.
“You can call your issuer and simply ask when your balance gets reported every month,” she suggests. “Normally people who want to have a good credit history will try to pay off their balances every month, which is great, but sometimes those payments do not make it before the reporting day. Knowing when your issuer reports your payment history will allow you to pay just before the reporting day so that your credit utilization ratio is below 10%.”
Your available credit is an unused portion of credit on your credit card. The more you have, the better – not just for your budget or to avoid getting in too much debt, but for your credit score as well. Use your available credit wisely and make sure to pay before the due date, while keeping in mind processing and reporting times.