What Is Available Credit?

Available credit is related to the account balance of a credit card or other form of debt. Available credit refers to how much a borrower has left to spend; this amount can be calculated by subtracting the borrower's purchases (and the interest on those purchases) from the total credit limit on the account. A credit limit is the total amount that can be borrowed; the total credit limit for a consumer is usually determined based on their credit reports and their gross annual income.

Understanding Available Credit

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

For credit card holders, available credit is the amount that is left when you subtract all your purchases (and the interest on those charges) from the maximum credit limit on your credit card. For credit card holders, available credit can fluctuate: It can increase or decrease based on the borrower's purchase and payment history. A borrower can check their available credit at any time.

Key Takeaways

  • Available credit refers to how much a borrower has left to spend; this amount can be calculated by subtracting the borrower's purchases from the total credit limit on the credit account.
  • For credit card holders, available credit is the amount that is left when you subtract all your purchases (and the interest on those charges) from the maximum credit limit on your credit card.
  • For credit cards, and other types of revolving credit, payments go towards increasing the borrower's available credit (which the borrower can then use for additional purchases).

For credit cards and most other types of debt, the borrower must make monthly payments of both their principal and the interest. With credit cards (and other types of revolving credit), payments go towards increasing 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 will decrease. Conversely, when they make payments, their available credit increases.

A line of credit (LOC) is one type of credit agreement that does not a dynamic available credit balance. Unlike a credit card, a line of credit is not a revolving credit account. A borrower receives the credit funds that they were approved for in a lump sum amount. While the borrower has the flexibility to use the credit whenever they choose to, once they have spent the set amount of credit, the account is closed. They must make payments on the debt, but it is a one-time extension of credit. Even when they make payments, their available credit does not increase.

A borrower’s available credit also decreases when accumulated interest is added to the account each month. Borrowers are issued a monthly statement which details all of their transactions, any interest accrued from the past 30 days, and their required payment amount. The payment amount that a borrower is required to make includes both their principal and interest; a borrower's principal is the amount of debt they accrued through making purchases. The amount of interest they have due varies based on the cardholder’s interest terms.

Available Credit vs. Credit Limit

Available credit and credit limit are similar terms; they are both related to the account balance of a credit card or other kind 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 balance on the account, available credit helps a borrower to determine how much they have left to spend.

At the point 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 equal to zero. The account has been maxed out and the borrower can no longer make purchases (without exceeding their credit limit).

Special Considerations

It is in the best interest of borrowers to be aware at all times of their available credit balance. As they make additional purchases, and as more interest accrues, their balance will increase, moving closer to their maximum credit limit. Once they've reached their maximum credit limit, their spending will be capped.

Exceeding a credit account’s maximum limit, or carrying high balances with low levels of available credit, can negatively affect a borrower’s credit score (especially when it is done across multiple accounts). Credit bureaus typically deduct credit score points from borrowers when they have balances that exceed their available limits.