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How Do Available Credit and Credit Limit Differ?

Available Credit vs. Credit Limit

Ever Wonder What Your Credit Limit Really Means?

Your credit card statement arrives each month, and right there on the first page it lists your available credit and credit limit. But have you ever stopped to think about what those numbers actually represent and how they differ? Understanding the distinction between available credit and credit limit is crucial for managing your finances responsibly and maintaining a good credit score.

What is Your Credit Limit?

Your credit limit is the maximum total amount of credit that a lender has approved for you to borrow. It represents the highest outstanding balance you can carry on that particular credit card or line of credit before you max it out. Credit limits can range anywhere from a few hundred dollars for a secured credit card or student card, all the way up to $50,000 or more for premium travel rewards cards.

Credit limits are assigned based on your creditworthiness when you first apply, taking into account factors like your credit score, income, existing debt levels, and credit history. Lenders want to see that you have the capacity to pay back what you borrow. They assign higher credit limits to borrowers they deem less risky based on their proven track record of responsible credit usage.

As you maintain an excellent payment history over time, card issuers may periodically increase your credit limit as a privilege for being a great customer. You can also request a credit limit increase yourself, though they'll do another hard pull on your credit report.

What is Your Available Credit?

Your available credit, on the other hand, refers to the amount of your total credit limit that you have not yet used or borrowed against. It is essentially the remaining balance that is still available for you to spend on new purchases before hitting your credit limit.

Your available credit declines whenever you make a purchase on that account and then goes back up as you pay your outstanding balance down. If you pay your statement balance in full by the due date each month, your available credit resets back to your full credit limit after each billing cycle.

To calculate your available credit on a credit card, simply take the total credit limit and subtract your current outstanding balance:

Available Credit = Credit Limit - Current Balance

Why Does Available Credit Matter?

Having a low available credit can negatively impact your credit utilization ratio, which is one of the biggest factors that make up your credit score. Credit scoring models look at how much of your total credit limits you are using across all your accounts.

For example, if you have a credit card with a $10,000 limit and a $9,000 balance, your credit utilization on that card would be a very high 90%. To optimize your scores, you want to keep your total utilization on all cards below 30% and your per-card utilization below 10%.

In addition to credit score impacts, having too low of available credit could mean getting declined for new credit applications if lenders see you as overextended. Or it may prompt penalty fees for going over-limit from your card issuer.

Ultimately, your available credit represents your financial flexibility and borrowing power at any given time.

Understanding the Difference of Credit Limits vs Available Credit

To recap the key differences: Your credit limit is a fixed amount set by the lender, representing the maximum you can borrow on that account. It does not change from month to month.

In contrast, your available credit is a variable number that fluctuates based on your account balance and will change whenever you make purchases or payments.

Your credit limit essentially sets a cap on how high your outstanding balance can go. While your available credit shows your remaining capacity before hitting that ceiling.

You want your available credit to stay as high as possible compared to your limit while keeping your credit utilization low. But you also want your total credit limits to be high enough to keep utilization down even when you need to make large purchases.


By understanding how credit limits and available credit differ, you can better navigate the monthly cycle of using credit, making payments, and keeping an eye on your standing with lenders. With smart credit management habits and tools like QuickSettle, you can keep enjoying ongoing access to affordable credit while building an excellent credit profile. QuickSettle simplifies your financial transactions, ensuring you stay on top of your credit usage and payments effortlessly.

Frequently Asked Questions (FAQs)

What is a credit limit?

A credit limit is the maximum amount of credit that a lender has extended to you on a credit card or line of credit. It represents the total amount you can borrow at any given time.

What is available credit?

Available credit is the amount of unused credit you have on your credit card or line of credit. It is calculated by subtracting your current balance from your credit limit. For example, if your credit limit is $5,000 and your current balance is $1,500, your available credit is $3,500.

How do credit limit and available credit impact my credit score?

Both credit limit and available credit impact your credit utilization ratio, which is a significant factor in your credit score. Credit utilization is the percentage of your credit limit that you are using. Lower credit utilization ratios are generally better for your credit score. For instance, if you have a high credit limit but a low balance, your available credit is high, resulting in a lower utilization ratio and potentially a better credit score.

Can my available credit change without changing my credit limit?

Yes, your available credit can change frequently as you make purchases and payments on your credit account. Each time you make a purchase, your available credit decreases, and each time you make a payment, your available credit increases. However, your credit limit remains the same unless the lender decides to increase or decrease it.

How can I manage my credit limit and available credit to improve my credit score?

To manage your credit limit and available credit effectively, aim to keep your credit utilization ratio below 30%. This means using less than 30% of your available credit at any given time. Regularly paying off your balance in full, requesting credit limit increases (if you can manage the higher limit responsibly), and spreading your expenses across multiple credit accounts can help maintain a healthy credit utilization ratio and improve your credit score.


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