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What is Available Credit?

Patrick Roland
Patrick Roland

Available credit is one aspect of credit cards that confuses many card holders. In short, it is the amount of money that a person is allowed to charge on a credit card at that specific time. It often gets confused with a credit limit, but they are very different. Sometimes available credit is rather low, and there are ways to increase this number.

A credit card is a method for borrowing money from a large financial institution. The borrower normally is issued a line of credit based on several financial factors and then issued a card that tracks spending and payments made to that line of credit. When issued the credit, the borrower promises to repay any of it that is used, almost always with interest.

Man climbing a rope
Man climbing a rope

The amount that is available on a line of credit is how much of the original total remains available. For example, if a borrower wishes to purchase groceries and has been issued a line of credit for $100 US Dollars (USD) but has $30 USD worth of previous purchases, the available credit on that line is $70 USD — or a little less, if interest has been added to the $30 USD that already had been charged to the account. Available credit describes how much money is available to be borrowed, not the overall value of the credit line.

The overall value of a credit line, known as a credit limit, is often confused with the available credit. The credit limit is the maximum amount of money that has been authorized to be borrowed. This is a separate, static number from the available credit, because available credit fluctuates as the borrower makes purchases with the card and makes payments on the credit. The line of credit is subject to change by the lending institution, which often increases or sometimes decreases the total amount.

There are a few simple ways to increase the available credit on a line of credit in order to purchase more goods and services. The easiest way to increase available credit is to pay off the balance, because this gives the borrower the full line of credit to makes purchases. For example, if the grocery buyer in the first example paid off the $30 USD debt — plus interest, if any — before going to the store, he or she would have $100 USD to spend instead of about $70 USD. Another way to increase the working capital on a line of credit is to make payments on time because many lending institutions reward good customers by either automatically increasing a line of credit or by accepting requests for increases.

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