Every credit card has a maximum credit limit. The issuer of your credit card gives you a credit limit, which is the maximum outstanding balance you can have on your credit card at any given time. As long as you stay in good standing and remain under your credit limit, you can continue to make purchases up to that maximum amount.
What is available credit?
Staying within your credit limit means knowing your available balance at all times. Depending on the terms of your credit card, you may face penalties for exceeding your credit limit, or your card issuer may stop accepting new purchases.
Available credit is the amount of your credit limit that you can use for purchases. This amount changes as your balance and credit limit change. If your available balance is $0, it means you have no credit left to make purchases. This can happen if you’ve maxed out your credit card, your payment hasn’t cleared, or you’ve missed a payment on your credit card.
Note: Cash advances may be treated separately from your purchase balance and may have a lower amount than the available credit.
The importance of having available credit
The more available credit you have, the better. Having a large amount of available credit is great for your credit scores because it makes you look less risky to lenders. A lower balance means that your credit utilization ratio, which makes up 30% of your credit scores, will also be low. Generally, it’s best to keep your credit card balance below 30% of your credit limit. On a credit card with a $1,000 limit, this means you want to maintain a balance under $300, leaving you with $700 of available credit.
The less available credit you have, the less valuable your credit card becomes to you. You won’t be able to use your card when you really need it, for example, to rent a car or book a hotel. The only other option will be to use your debit card, and some transactions require a security deposit or additional verification when using a debit card.
What happens if you exceed your available balance?
Transactions that exceed your available balance are typically declined unless you’ve given permission for transactions that go over your credit limit to be processed. You have the option to allow your credit card issuer to process transactions that would put you over your credit limit. However, this also puts you at risk of incurring over-limit fees or a penalty interest rate, if your credit card issuer has these features.
Note: Your available balance can have a negative value if you exceed your credit limit.
Increasing your available balance
Your available balance does not reset but adjusts when your payments are processed to your account. Once you make payments on your credit card, more available credit will be freed up. It’s important to note that it may take a few business days for the payment to reflect on your available credit, depending on your credit card issuer’s policy for processing payments. If you’re trying to free up some credit for a large purchase, you may need to make a payment several days before the purchase.
Another way to increase your available balance is to request a credit limit increase. Once you’ve submitted the request, the credit card issuer will review your account and credit history to determine if you qualify. You will still have the same amount of debt, but if approved, a credit limit increase will raise your available credit. Factors that will affect your eligibility for a credit limit increase include the age of your account, your payment history, and changes in your income.
Questions
Frequently Asked Questions (FAQs)
How can I request a credit limit increase?
You can contact the customer service of your credit card issuer to request a credit limit increase.
How much available credit do I need to rent a car?
The exact amount of available credit you need to rent a car varies by company and the car you are renting. Generally, the rental company requires you to have enough credit to cover the cost of the rental plus an additional amount ranging from approximately $200 to $500.
Why is my available credit so low?
If your available credit is low even before you start spending, it’s likely that your credit card issuer sees you as a high-risk borrower. Your credit limit is based on factors such as your credit score and payment history. If you need a higher available credit, work on improving these factors.
How can I choose a consumer credit counseling service?
There are many options for credit counseling services if you need help understanding your credit situation or debts, but you should ensure you are using a reputable service. Organizations should be accredited either by the National Foundation for Credit Counseling or the Financial Counseling Association of America.
Source: https://www.thebalancemoney.com/available-credit-definition-959988
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