What is available credit on a credit card?

Logging into your credit card’s online account management page is the best way to view details about your card and its current status. This includes an overview of the charges you have made, as well as your current credit balance and available credit.

But, what is available credit on a credit card exactly? Simply put, your available credit is how much money you have left to spend on your card before you hit your credit limit.

There are more details to keep in mind when it comes to available credit, including what happens if you try to charge purchases that exceed the amount of available credit you have. Read on to find out everything you need to know about available credit on a credit card and how it works.

Available credit vs. credit limit

First off, you should have an understanding of what your credit limit is and where this figure comes from. For the most part, credit card issuers determine your credit limit when you submit your information and apply for a card. While their exact processes are considered proprietary information, credit limits are set based on factors like credit history, credit score and the applicant’s income.

If you charge enough purchases on your credit card to meet and surpass your credit limit, you may face a denial at the point of sale. Or, your credit card might approve a charge over your credit limit, then hit you with an over-limit fee.

Your credit card might also begin charging you a penalty APR if your charges exceed your credit limit. This APR is higher than the interest rates you would normally pay on purchases, and it may eventually apply to your whole balance if you don’t pay it down enough to get it below your credit limit.

Available credit on a credit card explained

Since available credit is the amount of money a person can spend on a credit card without hitting their limit, this amount can vary based on factors like the credit limit itself and how much a person currently owes on their card. That said, only basic math is required to figure out how much available credit a person has.

If the credit limit on a credit card is set at $10,000 by the card issuer and the cardholder currently has a balance of $3,000, their available credit would be $7,000.

$10,000 – $3,000 = $7,000

This is the amount the cardholder can still charge in purchases to their card, and available credit is also subject to change. For example, available credit can increase when someone makes a payment, and it will decrease with each purchase they make.

How available credit can impact your credit score

Having plenty of available credit is typically good news, and for more reasons than one. First off, having available credit means you aren’t maxing out your credit limits and that you have some purchasing power available to you if you need it. Second, having available credit can have a major impact on your credit score, and having more available credit is always better on this front.

In fact, the amounts you owe on your cards in relation to your credit limits is the second most important factor that makes up your FICO score, accounting for 30 percent. When it comes to this factor, most experts agree that you should try to keep your balances owed at 30 percent or less of your credit limit for the best results. This means maintaining a balance of $1,500 or less for every $5,000 in credit limit you have. It also means that your available credit should fall between 70 percent to 100 percent of your credit limits at all times.

How to increase your available credit

If you need more available credit for any reason, there are a few different ways to go about it. For example, you can:

• Ask your credit card issuer to increase your credit limit.
• Apply for a new credit card.
• Pay down credit card debt.

When it comes to the first suggestion — asking your card issuer to increase your credit limit — this could potentially happen on its own. If you use your card responsibly and build a good track record when it comes to on-time payments, many card issuers will slowly increase your credit limit.

You can also call your card issuer to request a credit limit increase, and some even let you do it online. In either case, asking for more available credit can result in a hard inquiry on your credit report.

Paying down credit card debt can also increase your available credit while leading to other benefits. For example, paying off debt can free up cash you can spend in other areas of your life, and it can help you save money on credit card interest over time.

Finally, you can always apply for a new credit card to access more available credit. This strategy can even help you earn a generous credit card sign-up bonus if you can meet a minimum spending requirement within the first few months of account opening.

If you’re thinking of opening a new card so you can boost your available credit, make sure to compare all the best credit card offers on the market right now.

Bottom line

Now that you know what available credit on a credit card means, make sure you keep tabs on how much you have — or don’t have. Doing that should enable you to stay within your limit and not risk being denied for a purchase or being hit with penalty fees.