The difference between available credit and credit limit is tied to the account balance of a credit card or other debt. The credit limit is the total amount of credit available to a borrower, including any amount already borrowed. Available credit is the difference between the credit limit and the account balance—how much you have left to spend, in other words.

Key Takeaways

  • Available credit is the amount of money that is available, given the current balance on the account.
  • A credit limit is the total amount that can be borrowed.
  • Available credit and credit limit are equal when none of the available credit has been used, and the account balance is zero.
  • If all available credit has been used, the credit limit has been reached, the account is maxed out, and the available credit is zero.
  • Some credit card companies will allow the account balance to exceed the credit limit (if the borrower has signed an agreement) and others will simply decline any new transactions if the account has reached the limit.

Available credit and credit limit represent the relationship between current spending power and total spending power. As the borrower taps their credit line and balances increase, available credit decreases. Once the account balance reaches the credit limit, the account has been "maxed out" and available credit is zero. On the other hand, if the individual's account balance is zero, available credit and credit limit are equal.

Reaching the Limit

If the credit limit is reached and there is no more available credit, credit card companies will typically decline any further transactions. However, some credit card companies allow borrowers to increase account balances just beyond credit limits provided that the borrower has agreed to the terms in writing. The increase beyond the credit limit is sometimes a result of charges and sometimes a result of interest, fees, or penalties.

Most credit card companies charge stiff penalties for accounts with balances above the credit limit—again, provided the borrower agrees to this in writing. In times of need, consumers may be tempted to sign any document that gives them access to needed cash. It is useful to note, however, that you can’t be charged an over-limit fee if the only reason that you are over your limit is due to interest charges or fees.

Fees and Charges

The Consumer Financial Protection Bureau mandates the amounts that credit card companies are allowed to charge for credit card accounts over the credit limit. The first time a balance exceeds a given credit limit, a charge of up to $25 may be applied. The second time a balance exceeds the credit limit within a six-month period, a charge of up to $35 may be applied. However, the penalties or fees applied may not exceed the amount that the account is over the limit.

Some credit card companies will charge a high penalty annual percentage rate (APR) for violating terms of the credit agreement, perhaps canceling a previously offered low-introductory APR.

Individuals who have agreed to accept fees for exceeding credit limits can change their minds at any time by notifying the lender in writing, but this does not apply to transactions made before opting out of over-limit fees. Also, the lender is more likely to refuse transactions that take an account over the credit limit after a borrower has opted out.