Understanding Available Credit
Available credit pertains to the amount that you have left to spend. You can determine your available credit by subtracting your purchases from your total credit limit. Available credit can increase or drop based on your payment history and purchase. The available credit on your account increases whenever you make payments and it drops when you make purchases. Keep reading for understanding available credit.
Why is Available Credit Important?
If you have a lot of available credit, your credit score will also improve. You’ll look less risky to creditors, so you may also get better interest rates and terms. If you have no available credit on your card, you will not be able to use it to make purchases or pay bills. When this happens, you’ll have to depend on your debit card to buy something. Some online transactions require extra verification or a security deposit when you’re using a debit card.
So what will happen if you spend more than the available credit on your card? Transactions over the available credit will not go through unless you have allowed your card provider to process such transactions. However, it will also put you at risk of getting a penalty rate or over limit fee. The available credit on your card will be negative if you’ve exceeded the credit limit. But if you did not make any purchase, the credit limit and available credit amount on your card may be the same.
How to Increase Your Available Credit
The available credit on your card doesn’t reset. However, it will adjust once your payments reflect in your account. The available credit on your credit card will increase when you pay your bills. It may take several business days for your payments to appear in your account, depending on the payment posting policy of the credit card company. If you’re planning to make a large purchase, consider making payments a few days in advance of your purchase.
Another option to increase the available credit on your card is to increase your credit limit or the amount that you can borrow. The credit limit is often determined based on the cardholder’s gross annual income and credit reports. You can ask your credit card provider to increase your credit limit. They will assess your credit history and account to determine whether you’re qualified or not. The credit card company will also consider your payment history, income and the age of your credit card account. If your request is approved, your available credit will increase as well.
Conclusion
You should be aware of your available credit at all times. As you continue to use your credit card to make purchases and accrue interest, your balance will also increase. Once you have reached your maximum credit limit, you will not be able to use your credit card like you used to. Exceeding the maximum limit of your credit account or having a high balance with low or zero available credit can harm your credit score. Credit bureaus will deduct points from your credit score when you have balances that exceed your available limits.