Why Your Credit Card's Available Credit Is Important

You can only spend a certain amount of money on your credit card. Your credit card issuer gives you a credit limit, which is the highest outstanding balance you can have on your credit card. You can keep making purchases up to the amount of your credit limit as long as you have available credit.

What Is Available Credit?

Staying within your credit limit means knowing your available credit at all times. Depending on your credit card terms, you may face a penalty for going over your credit limit.

Your available credit is the amount of credit you can use for purchases. The amount changes when your balance and credit limit change. If your available credit is $0, it means you don't have any credit for making purchases. This can happen if you've maxed out your credit card, your payment hasn't cleared, or your credit card payment is delinquent.

Having a balance on your credit card would make your available credit lower than your credit limit. Pending transactions that haven't posted to a credit card will lower your available credit. For example, if your credit limit is $2,000 and you have a balance of $500, then you would have $1,500 of available credit. A pending transaction of $100 would reduce your available credit to $1,400.

Cash advances are often treated separately from your purchases balance and may have a lower available credit amount.

There are a few ways you can check your available credit. First, you can call your credit card issuer via the number on the back of your credit card. You can also log into your online account through your computer or mobile browser. You can also download your credit card issuer's mobile app to check your available credit and other account details.

Your credit card billing statement isn't the best place to check your available credit because of the transactions that may have posted to your account since your billing statement was printed.

The Importance of Having Available Credit

The more available credit you have, the better. Having a lot of available credit is good for your credit score. It means you're keeping your credit card balance low. A lower balance means your credit utilization, which is 30% of your credit score, will also below. It's best to keep your credit card balance below 30% of your credit limit. That means you'll have a balance of between $300 and $700 available credit on a credit card with a limit of $1,000.

The less available credit you have, the less valuable your credit card is to you. With only a small amount of available credit, you won't be able to use your credit when you need it, for example, to rent a car or book a hotel. Your only other option would be to use your debit card. Some transactions require a security deposit or extra verification when you use a debit card.

What Happens If You Use More Than Your Available Credit?

Transactions over your available credit will usually be declined unless you've given permission to have over-the-limit transactions processed. Opting-in allows your credit card issuer to process transactions that would put you over the credit limit. However, it also puts you at risk of triggering an over the limit fee, if your credit card issuer charges one. Exceeding your credit limit can also trigger the penalty rate on your credit card.

Your available credit can actually be negative if you have exceeded your credit limit.

Your available credit doesn't reset, but it does adjust when your payments post your account. Then you pay on your credit card, the more credit you'll free up. Note that it could take a few business days for the payment to reflect in your available credit, depending on your credit card issuer's payment posting policy. If you're trying to free up some credit for a large purchase, you may need to make a payment several days in advance of the purchase. 

Another way to increase your available credit is to request a credit limit increase. Once you make the request, your credit card issuer will review your account and credit history to determine whether you qualify. You'll still have the same amount of debt, but if approved, the credit limit increase will raise your available credit.

Article Sources

  1. CreditUnion.gov. "Understand Your Credit Card Statement," Accessed Nov. 22, 2019.

  2. Experian. "What Is a Credit Utilization Rate?" Accessed Nov. 22, 2019.

  3. Consumer Financial Protection Bureau. "I Went Over My Credit Limit and I Was Charged an Overlimit Fee. What Can I Do?" Accessed Nov. 22, 2019.

  4. Federal Trade Commission, "Credit, Debit, and Charge Cards," Accessed Nov. 22, 2019.

  5. Consumer Financial Protection Bureau. "1026.56 Requirements for Over-the-Limit Transactions," Accessed Nov. 22, 2019.

  6. Capital One. "Credit Line Increase FAQ," Accessed Nov. 22, 2019.