This page will describe how the terms credit limit and available credit are used in the United States in relation to credit cards.
When you open a credit card the financial institution that you are opening the account with will assign you a credit limit.
This page can help you understand the concepts of credit limits and available credit.
What this page cannot do is decide for you whether a given purchase does or does not make sense for you.
Please DO leverage this page and the pages that follow to better understand your cash flow when using a credit card.
Please DO NOT misuse your growing knowledge of credit limits, available credit, and statement cycles to think that money will magically appear from "somewhere" before your due date.
Your current balance is what you owe on a charge card or credit card as of right now.
Consumers will generally be well served by understanding that they should ideally plan on paying their statement balance by their upcoming due date.
However, this page deals with available credit.
To understand available credit, we need to temporarily put aside statement balance and instead focus on current balance.
For a credit card, your available credit is your credit limit minus your current balance.
There can be additional nuances to that such as when you have charges that have not posted yet but the merchant has put a hold on your credit card account for a preliminary amount.
The table below depicts a credit card account being opened on January 4, 2023.
There is nothing special about the date January 4, 2023; it is just a date I picked at random for this explanation.
|January 4, 2023||Account Opened|
Credit Limit Assigned
Account opening and credit limit being assigned are all that this row is intended to indicate.
|January 9, 2023||Purchase||$98.21|
|January 11, 2023||Purchase||$24.66|
|January 20, 2023||Current Balance||$122.87|
|January 25, 2023||Available Credit||$2,000 - $122.87 = $1,877.13|
In addition to the data in the table above, there is also the case where a vendor places a hold on your credit card until your final bill is settled.
An example of such a case would be when you stay at a hotel.
Before you have checked out your hotel will have likely placed a hold on your credit card.
After you check out, your bill will be settled and the initial hold will fall off.
That process might not happen as quickly as might like.
For many of us it will not matter unless our current balance is close to our credit limit.
This page introduced the concepts of credit limits, current balance, and available credit.
This example in the previous section was for a single account.
Often when someone is instead trying to calculate total credit used vs total credit limits across all his or her accounts it is because he or she is trying to calculate his or her credit utilization.
Credit utilization is a significant part of a personal credit score.
When I have time, I will create a page on credit utilization.
Before I create a page on credit utilization, please go through the pages in the Credit Card section of this website that will dig deeper into understanding balances and statement cycles.
In terms of your credit score, what matters for calculating revolving credit utilization is not your current balances and credit limits as of right now, but what your card issuers have reported to the credit bureaus.
For most credit cards, that will be your credit limit and statement balance as reported on your last statement.
However, there are exceptions to that.
I will go over the exceptions when I post the page on credit utilization.
If that reference to credit utilization was not clear enough, that is perfectly fine.
I will go into greater detail on credit utilization later.