To stay within your credit limit, you must always know how much credit you can use. Depending on the terms of your credit card, if you go over your credit limit, you may have to pay a fee, or your card issuer may stop taking new charges. Your "available credit" is the amount of your credit limit you can still use to buy things—the amount changes when your balance or credit limit does. If your available credit is $0, you can't buy anything because you have no credit. This can happen if your credit card has reached its limit, if your payment hasn't cleared, or if your payment is late. The credit limit is the most money that can be borrowed. Most of the time, a person's total credit limit is based on their credit reports and how much money they make in a year.

Learning Available Credit

The difference between the borrower's total credit limit and the amount of money they have spent is the amount of available credit. If you have a credit card, your available credit is the amount left over after subtracting all your purchases from your maximum credit limit. Depending on what they've bought and how much they've paid back, a person's available credit can go up or down. Any time, a borrower can look to see how much credit they have.

Most types of debt, like credit cards, need both the principal and the interest to be paid monthly. When someone makes payments on a credit card, it helps them get more credit. When a borrower uses revolving credit, like a credit card, to make purchases, the amount of available credit decreases. On the other hand, their credit goes up when they pay their bills.

Credit Limit vs. Available Credit

Both "available credit" and "credit limit" refer to the amount of money owed on a credit card or other type of debt. The credit limit of a borrower is the most credit they can get. The available credit is the difference between the credit limit and the amount of money in the account. Borrowers can determine how much money they still have to spend by looking at their current account balance and "available credit."

If you haven't bought anything, the amount of available credit and the credit limit may be the same. When a borrower uses all of their available credit, they have reached their credit limit, and their available credit is equal to zero. The account is full, so the person can no longer buy things.

The Value of Having Available Credit

Having more credit is better than having less. If you have a lot of credit available, your credit score will increase because lenders will see you as less of a risk. If your balance is low, so is your credit utilization ratio, which makes up 30% of your credit score. In general, it's best to keep your credit card balance below 30% of your credit limit. On a credit card with a $1,000 limit, you should keep your balance below $300, which gives you $700 of available credit.

Your credit card's utility directly correlates to the available spending money on it. You won't be able to use your card for booking hotel reservations or vehicle rentals in the future, either. The only other option available would be to use your debit card; however, many transactions using debit cards demand additional verification or a security deposit.

What Happens if Extra Credit Is Used Than Is Available?

Transactions with a cost that is more than your available credit will often be declined unless you have specifically authorized the bank to proceed with transactions with a cost that is greater than your available credit. If you provide your permission, the firm that issued your credit card may conduct transactions for you that would cause you to go over your available credit. But if these things are part of your credit card company, you could be charged an over-limit fee or a penalty rate.

Special Considerations

Borrowers should always be aware of how much credit is available to them. As they buy more things and pay more interest, their balance will increase, bringing them closer to their credit limit. When their credit limit is reached, they won't be able to spend any more money. If a borrower goes over their account's maximum limit or has high balances but not much available credit, their credit score can go down. When borrowers' balance exceeds their available limit, credit bureaus usually lower their credit score by a few points.