Why Your Credit Card’s Available Credit Matters

Why Is Available Credit on a Credit Card Important?

Your available credit generally refers to the available credit on a single credit card. However, within the context of credit scoring, your overall available credit from all your credit cards can also be important. In either case, here's a closer look at why your available credit is important.

It Determines How Much You Can Spend

Your available credit tells you how much of your credit limit you have left, which impacts how much you can spend on the card. Generally, the credit card company will decline new transactions once you reach your credit limit, and you'll have to pay down your balance before you can use your card again. But if your card issuer lets you go over the limit, the overlimit amount may be added to your minimum required payment with your next bill.

It Can Help or Hurt Your Credit Scores

Although your available credit doesn't affect your credit score directly, your credit utilization ratio can be an important credit scoring factor. Credit utilization is the percentage of your credit limit that you're using, and your available credit is what's left over.

For example, if your credit card has a $5,000 limit and a $500 balance, its utilization ratio is 10%. The numbers come from your credit report rather than your current balance and credit limit, and managing your available credit throughout each billing cycle can help you control what's reported to the credit bureaus (Experian, TransUnion and Equifax) and the resulting utilization rate.

Credit scores consider the utilization ratio on individual revolving credit accounts, such as a credit card or line of credit, and your overall utilization ratio. A lower utilization rate is best for your credit scores. Or, put another way, the more available credit you have, the better.

It Might Affect Your Creditworthiness

Your available credit also might affect your creditworthiness or credit scores in other ways.

For instance, some creditors and credit scoring models consider trended data from your credit report, such as changes in your credit card balances, how frequently you go over a card's credit limit and how often you make more than the minimum credit card payments. If your available credit decreases over time, that might hurt your creditworthiness or those credit scores.

Creditors also often consider your debt-to-income ratio (DTI), a comparison of your monthly income and bills. High credit card balances can lead to larger minimum payments, which can increase your DTI. This might affect your ability to qualify for new credit—including home or auto loans—and your credit offer's terms.

How to Increase Your Available Credit

You can increase your available credit by paying down your current balance, managing your balance throughout the month and increasing your card's credit limit. Here's a closer look at several popular strategies for each option.

Pay Down Credit Card Debt

Paying down your credit card balances and freeing up available credit can give you additional spending power and help your credit scores. But it's not always easy. Consider one of these options if you're unsure where to start:

• Debt snowball strategy: Order your credit cards based on their balances and then focus on paying off the card with the lowest balance first—while still making minimum payments on your other cards. The approach can be helpful because paying off cards quickly could give you motivation to stick with the plan.
• Debt avalanche strategy: Order your credit cards based on their annual percentage rate (APR) and pay off the card with the highest APR first. The approach can help you save money on interest charges.
• Debt consolidation loan: Take out a new loan and use the proceeds to pay off credit card balances. A debt consolidation loan might offer a lower interest rate than your credit cards, saving you money and allowing you to pay off the debt sooner. Some people also prefer having fixed monthly payments and a set repayment term.
• Balance transfer credit card: You also might be able to get a new credit card with an introductory 0% APR balance transfer offer and transfer balances to the card. There may be a balance transfer fee, but you can then pay down the balance without accruing interest during the promotional period.

Manage Your Balance Throughout the Month

Credit card companies often report your balance and credit limit at the end of each billing cycle. Managing your available credit could lower your current balance before that point, resulting in a lower balance on your credit report and lower credit utilization rate. You can do this by:

• Using your credit card less often or for smaller purchases
• Making an early payment before the end of your billing cycle
• Paying your credit card bill weekly or biweekly instead of monthly

Increase Your Credit Limit

You can try to increase your credit card's credit limits, which would give you more available credit, by:

• Asking for a credit limit increase: You may want to wait until your income or credit scores have increased before asking, but once you're ready, you can look for an option online or call your card issuer. The request might result in a hard inquiry, which could temporarily hurt your credit scores a little.
• Updating your income information: Update your credit card account with your new income every time you get a raise—you may be able to include your household's income as well. This could prompt the credit card issuer to increase your credit limit without you asking.

You also may be able to transfer credit limits between your credit cards from the same issuer. Although this won't increase your overall available credit, it could be helpful if you tend to run out of available credit on a card that you prefer to use.

Ways Your Credit Card Can Help You Build Credit

Most credit card issuers will report your account to all three credit bureaus, and credit cards can help you build credit and improve your credit scores:

• Your on-time payments can help you build a positive payment history.
• If you have a lot of available credit, the low utilization rate can improve your credit scores.
• If the card doesn't have an annual fee and you pay your bill in full every month, you can keep it open without paying fees or interest and increase the length of your credit history.
• Having an open and active credit card account can add to your credit mix.

You don't necessarily need a credit card to have good credit. But credit cards can also offer valuable benefits and protections and be a safer payment option than using a debit card.

Check Your Credit Card Offers for Free

You can also increase your overall available credit by opening a new credit card. However, you'll want to compare credit card offers and terms to find the right fit. You might want to check your credit scores first to see if you'll likely qualify when you apply. But you can also use Experian's card comparison tool to compare credit cards and get matched with card offers based on your unique credit profile.