Available Credit

Available credit is the unused portion of credit available for a customer on a revolving credit account. Available credit is the difference between the total credit limit and the amount that has been accumulated for purchases and interest.

Available credit is a measure that is only associated with revolving credit accounts. It is a distinguishing factor in the comparison of revolving and non-revolving credit. In non-revolving credit a borrower will receive their total approved borrowing principal up front in a lump sum payment while in revolving credit the outstanding balance fluctuates.

Many borrowers choose revolving credit accounts over non-revolving loans because of the flexibility offered with available credit. In both types of accounts, a borrower must make monthly payments of principal and interest. However, in a revolving credit account the payments are typically lower, and they go towards increasing the available credit for which a borrower can use for additional purchases.

In a revolving credit account, a borrower submits a credit application that is reviewed by the underwriters who provide an approval with a maximum credit limit. Instead of receiving these funds at once in a lump sum the borrower has the flexibility to use the credit whenever they choose. In a credit card account the borrower will be issued an electronic payment card which they can use for all types of purchases. In a banking line of credit, the borrower typically has the flexibility to transfer line of credit funds to their checking account for use through their debt card.

Borrowers with revolving credit accounts can check their available credit at any time. When they make purchases, their available credit will decrease and when they make payments their available credit will 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 and interest from the past 30 days as well as a payment amount. The payment amount includes both principal and interest which is calculated based on the cardholder’s interest terms.

Borrowers must maintain awareness of their available credit. As they make additional purchases and accumulate interest their balance will move closer to their maximum limit which will cap their spending when reached.

Exceeding an account’s maximum limit or carrying high balances with low levels of available credit across multiple accounts can negatively affect a borrower’s credit score. Credit bureaus typically deduct credit score points for balances exceeding their available limit. Total outstanding balances are also an important component of a borrower’s credit score since credit bureaus factor in a borrower’s credit usage in their credit score calculations.