Available Credit Definition

What is available credit?

The available credit is linked to the account balance of a credit card or any other form of debt. Available credit refers to the amount a borrower still has to spend; this amount can be calculated by subtracting the borrower’s purchases (and interest on those purchases) from the total credit limit on the account. The credit limit is the total amount that can be borrowed; A consumer’s total credit limit is generally determined based on their credit history and gross annual income.

Key points to remember

  • Available credit refers to the amount a borrower still has to spend; this amount can be calculated by subtracting the borrower’s purchases from the total credit limit on the credit account.
  • For credit cardholders, available credit is the amount left when you subtract all your purchases (and interest on those charges) from the maximum credit limit on your credit card.
  • For credit cards and other types of revolving credit, payments are used to increase the borrower’s available credit (which the borrower can then use for additional purchases).

Understanding available credit

Available credit is the difference between the total credit limit and the amount the borrower has accumulated through their purchases (plus interest on the amount of their purchases).

For credit cardholders, available credit is the amount left when you subtract all your purchases (and interest on those charges) from the maximum credit limit on your credit card. For credit card holders, available credit may fluctuate: it may increase or decrease depending on the borrower’s purchase and payment history. A borrower can check his available credit at any time.

For credit cards and most other types of debt, the borrower must make monthly payments on both principal and interest. With credit cards (and other types of revolving credit), payments serve to increase the borrower’s available credit (which the borrower can then use for additional purchases). For all revolving credit accounts, including credit cards, when a borrower makes purchases, their available credit decreases. Conversely, when they make payments, their available credit increases.

A borrower’s available credit also decreases when accrued interest is added to the account each month. Borrowers receive a monthly statement detailing all their transactions, interest accrued over the past 30 days, and payment amount required. The amount of payment a borrower is required to make includes both principal and interest; a borrower’s principal is the amount of debt he has incurred by making purchases. The amount of interest payable varies depending on the cardholder’s interest terms.

Available credit vs credit limit

Credit available and Credit limit are similar terms; they are both tied to the account balance of a credit card or other type of debt. The credit limit is the total amount of credit available to the borrower. Available credit refers to the difference between the credit limit and the account balance. Given the current account balance, available credit helps a borrower determine how much they have left to spend.

When no purchases have been made, the available credit amount and the credit limit amount may be equal. When a borrower uses all of their available credit, they have reached their credit limit and their available credit is zero. The account is depleted and the borrower can no longer make purchases (without exceeding their credit limit).

Special Considerations

It is in the interest of borrowers to know their available credit balance at all times. As they make additional purchases and the interest increases, their balance will grow, approaching their maximum credit limit. Once they reach their maximum credit limit, their spending will be capped.

Exceeding a credit account’s maximum limit or having high balances with low levels of available credit can negatively affect the credit score (especially when done on multiple accounts). Credit bureaus typically deduct borrowers’ credit scores when they have balances that exceed their available limits.

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