What is available credit and how does it work?
To understand available credit, it might help to imagine that you’re borrowing cash from a friend. Say your friend loans you $10 and you spend $4. If the original $10 you borrowed represents your credit limit, the $4 you spent is your current balance. And the $6 you have left is your available credit.
Learn about available credit on credit card accounts and how it could impact your credit scores.
What you’ll learn:
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The available credit on a credit card is your credit limit minus your current balance.
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Having more available credit across all your revolving credit accounts can help you keep your credit utilization ratio low. And this could help improve your credit scores.
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Depending on your credit card issuer, going over your available credit could lead to extra fees, declined purchases or even a closed account.
- Capital One never charges cardholders for going over the limit on credit card balances. View important rates and disclosures.
What does available credit mean?
Your available credit is the general amount of credit you have left to spend on a credit card account. To calculate the available credit on your credit card, subtract your card’s current balance from its credit limit.
Your available credit decreases as you make purchases with your card. If you pay off your entire balance, your available credit should equal the account’s credit limit at the start of each billing cycle.
Knowing how much available credit you have on your card can help prevent overspending, which could result in penalties and fees. It could also affect your credit.
Current balance vs. available credit
Every time you swipe your credit card, the purchase is added to a running total known as the current balance. This is the most up-to-date amount owed on the card. As your current balance grows, your available credit shrinks.
The current balance is different from the statement balance, which is the total amount owed at the end of the card’s billing cycle.
Credit limit vs. available credit
Credit limits are set by credit card issuers based on things like the cardholder’s credit history, income and balances on other cards. Your credit limit is often the maximum amount you can spend on a credit card account. Your available credit is how much you have left to spend before hitting your credit limit.
How does available credit work?
Suppose you have a credit card with a $10,000 credit limit. After paying for groceries, gas and other items, you’ve spent $1,500. That’s the card’s current balance, which means your available credit is $8,500. If you’re carrying a balance from the previous month, that amount is also subtracted from your available credit.
How does available credit affect your credit scores?
Your available credit may affect your credit scores because as your current balance goes up, so does your credit utilization ratio. This ratio compares the credit you’re using across all your revolving credit accounts to the total credit you have available.
Credit-scoring companies like FICO® and VantageScore® consider your credit utilization ratio when calculating credit scores. A low credit utilization ratio can show that you’re responsible with credit and spending.
How much of your available credit should you use?
The Consumer Financial Protection Bureau (CFPB) suggests keeping your credit utilization ratio below 30%. That means with a $10,000 credit card limit, your balance should stay below $3,000.
Some cardholders may also pay off their credit card early to free up available credit and try to improve their credit scores.
What happens if you go over your available credit?
Spending more than your available credit will put you over your credit limit and could have consequences.
Eligible Capital One cardholders may be able to exceed their credit limits. If your account has access, you could use the Confirm Purchasing Power tool before making an over-limit purchase to check whether it may be approved. You can also disable the ability to spend over your credit limit in your overlimit preferences.
It’s also important to know that Capital One cardholders are never charged fees for exceeding their credit limits. View important rates and disclosures. Other card issuers may handle limits differently. For example, if you go over your credit limit, your purchase could be declined and you may be charged a fee.
With any card issuer, repeatedly going over your credit limit could lead to a higher interest rate, a credit limit decrease or even a closed account.
Available credit FAQ
If you’re still curious about available credit, the answers to these questions might help.
Can I use all of my available credit?
Yes. But using all your available credit can impact your credit scores. That’s why the CFPB recommends using less than 30% of your credit limit.
Why is my available credit less than my credit limit?
You can think of your card’s available credit as your credit limit minus your current balance. If you have outstanding charges, they will reduce your available credit.
Your available credit might be the same as your credit limit at the beginning of the billing cycle if you don’t carry a balance. Say you have a $10,000 credit limit. If you spend $1,000, your available credit will drop to $9,000.
Can you lose available credit?
If your credit limit changes, that could affect your available credit. According to the CFPB, “Credit card companies generally can increase or decrease credit limits, including reducing your credit limit so that you no longer have any available credit.”
Key takeaways: What does available credit mean?
A credit card’s available credit is generally how much the cardholder has left to spend. You can determine the amount by subtracting your current balance from your credit limit.
If you think more available credit is right for you, you can see if you’re pre-approved for a Capital One credit card. Checking is easy, and it won’t hurt your credit scores. Just remember that the CFPB recommends using less than 30% of your available credit.
