Why your credit card’s available credit matters

The amount of available credit you have can affect how much you can spend on your credit card as well as your overall creditworthiness. Your available credit generally refers to a single credit card and is the difference between your card’s credit limit and current balance. Within the context of credit scoring, the overall available credit across all your credit cards is also important.

It determines how much you can spend

The available credit tells you how much of your credit limit you have left. Generally, the credit card company will decline new transactions once you reach your credit limit, and you’ll have to pay down your balance before you can use your card again. However, if your card issuer lets you go over the limit, the overlimit amount may be added to your minimum required payment with your next bill.

It can help or hurt your credit scores

Your credit utilization ratio is an important credit scoring factor. Credit utilization is the percentage of your credit limit that you’re using, and your available credit is what’s left over.

For example, if your credit report reflects a credit card with a $5,000 limit and a $500 balance, its utilization ratio is 10%. Managing your available credit throughout each billing cycle can help you control what’s reported to the credit bureaus and the resulting utilization ratio.

Credit scores consider the utilization ratio on individual revolving credit accounts, such as a credit card or line of credit, and your overall utilization ratio. A lower utilization ratio is best for your credit scores.

It might affect your creditworthiness

Some creditors and credit scoring models consider trended data from your credit report, such as changes in your credit card balances, how frequently you go over a card’s credit limit, and how often you make more than the minimum credit card payments. If your available credit decreases over time, that might hurt your creditworthiness or those credit scores.

Creditors also often consider your debt-to-income ratio (DTI), a comparison of your monthly income and bills. Lower available credit and higher credit card balances can lead to larger minimum payments, which can increase your DTI. This might affect your ability to qualify for new credit along with your credit offer’s terms.

How to increase your available credit

You can increase your available credit by paying down your current balance, managing your balance throughout the month and increasing your card’s credit limit. Here’s a closer look at several popular strategies for each option.

Pay down credit card debt

Paying down your credit card balances and freeing up available credit can give you additional spending power and help your credit scores. But it’s not always easy. Consider one of these options if you’re unsure where to start:

  • Arrange your credit cards based on their balances and then focus on paying off the card with the lowest balance first (while still making minimum payments on your other cards).
  • Arrange your credit cards based on their annual percentage rate (APR) and pay off the card with the highest APR first. This approach can help you save money on interest charges.

Manage your balance throughout the month

Credit card companies often report your balance and credit limit at the end of each billing cycle. Managing your available credit could lower your current balance before that point, resulting in a lower balance on your credit report and lower credit utilization rate. You can do this by:

  • Using your credit card less often or for smaller purchases
  • Making an early payment before the end of your billing cycle
  • Paying your credit card bill weekly or biweekly instead of monthly

For more information on understanding and improving credit, see the following articles: