Credit 101

What is available credit and how much should you use?

Written by Lexington Law | Apr 15, 2024 7:00:00 AM

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Key takeaways:

  • Available credit refers to the funds you can use without exceeding your credit limit.
  • You should only use the amount of available credit that you can afford to repay in the same billing cycle.
  • You can find your available balance online, by texting or calling card member services and by checking your billing statement.
Your available credit determines how much money you can currently borrow without exceeding your credit limit. To find your available credit, subtract your account balances from your total credit limit.

Cardholders who responsibly use their available credit will likely improve their credit and their reputation with their bank. In general, you shouldn’t use more of your available credit than you can afford to repay during a billing cycle.

Here, we’ll explain available credit, credit card limits and strategies for successfully managing credit accounts.

Table of contents:

Available credit vs. credit limit

Your available credit and credit limit are two closely related terms with different functions. Available credit is the amount of money on your credit card you can currently spend, while your credit limit is the total borrowing limit set by your bank. So, for example, you might have a total credit limit of $5,000, but if yesterday you spent $400, you only have $4,600 of available credit today.

Banks use factors like credit scores and other financial information when they set credit limits for cardholders. If you develop a positive relationship with a bank, it might automatically increase your credit limit over time.

Available credit vs. current balance

Again, available credit refers to the funds you can access now, while your current balance reflects the funds you’ve already used. In fact, you can subtract your current balance from your credit limit to know what your available credit is. So, in the example used above, your current balance would be $400.

Your current balance also includes pending transactions that haven’t cleared into account. This helps to prevent cardholders from overborrowing while transactions are getting logged in.

How much of your available credit should you use?

Generally speaking, you shouldn’t borrow more money than you can afford to repay before your billing cycle ends. Interest only affects you when you carry a balance each period. The more you repay, the less interest you’ll have to worry about.

What happens if you exceed your credit limit?

Staying within your credit limit demonstrates financial maturity and it builds trust between you and your bank. Exceeding your credit limit too often will have the opposite effect on your credit score and reputation.

Common outcomes for frequently exceeding your limits include:
  • Reduced credit limit: Financial institutions can reduce the total amount of credit you can borrow for a set amount of time.
  • Credit score drops: Credit utilization makes up 30 percent of your credit score, so using too much money without paying it back will reduce your creditworthiness.
  • Penalty APR: If you borrow too often, your bank might give you a penalty APR with high interest rates to discourage you from borrowing too much money. Penalty APRs are temporary and vanish after six months of responsible card usage.

Can you increase your available credit?

Yes, you can increase your available credit by simply managing your funds responsibly and by proactively taking certain actions:

  • Ask for a limit increase: If your financial institution doesn’t automatically raise your limit, you can always submit a request. There’s no penalty for asking, even if your request is denied.
  • Pay down your balance: Paying off your outstanding debt is the fastest and most straightforward way to increase available credit.
  • Obtain new credit: Having different types of credit cards and lines of credit lets you borrow more money without exceeding your limit. To reduce the risk of overborrowing, try not to open more than two to three credit cards at once.

4 ways to check your available credit

Double-checking your available credit can help you stay within your limit and prevent hits to your credit score. You have plenty of options for checking available credit, from using a credit card payoff calculator to calling your financial institution.

1. Billing statement

You should always keep your paper and electronic billing statements on hand as they can outline your available credit and transaction history. Any purchases or payments you make after your billing cycle ends won’t be included in the billing statement, so this method isn’t always the most up to date.

2. Online account

Online banking accounts provide info on your available credit, purchase history and pending transactions. Most institutions let you check your information on their websites, and they offer mobile banking apps that receive frequent updates.

3. Text messages

Your financial institution might let you opt in for text message updates on your account. This helpful alternative is useful when a strong internet connection isn’t available.

4. Card customer service number

You can always call the card services number on the back of your credit card when you’re curious about your available credit. Many institutions use automated receptionists for common questions before transferring you to a live representative.

How does your available credit influence your credit score?

Your credit score helps lenders assess your financial responsibility and likelihood of repaying debts. If you struggle to make timely payments or frequently borrow too much money, your credit limit will decrease—which poses a risk to your credit health.

Credit utilization compares your current balances to your total credit limit. If you have a $1,000 credit limit and a current balance of $500, your utilization rate will be 50 percent. Keeping your utilization below 30 percent is a great way to avoid a limit reduction and maintain or improve your credit.

How long does it take to update available credit?

It can take three to seven business days for available credit to update after you make a payment. Financial institutions have to ensure that the payment went through and that the amount they’re charging you is accurate.

You can still use your credit card after you make a payment, but be careful not to accidentally exceed your balance. For example, if you have a $1,000 credit limit with a $500 current balance, using your card to make a $505 purchase will exceed your limit.

Manage your credit with Lexington Law Firm

Managing your accounts and available balances is a great way to start improving your credit. You’ll likely get into the groove of using your credit sparingly and paying off debts quickly. However, credit card transactions aren’t the only items that appear on your credit report.

It’s best to check your credit score and report regularly. If you find any derogatory marks that shouldn’t be there, Lexington Law Firm could help you challenge these errors. Check out our services, which include contacting the credit bureaus on your behalf, today.
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