At first glance, it might not seem like you can alter how much available credit you have. After all, when you open a credit card, your credit card company sets a limit without much input from you regarding the amount of credit you would like. But in reality, there’s a lot you can do to affect your available credit. You can pay off your debt, apply for a new credit card, or ask for an increase or decrease in your credit limit.
We’ll explain to you why you would want to adjust the amount of credit you have available and how much you should have.
In the realm of personal finance the concept of “available credit” often leaves individuals scratching their heads wondering how much is too much or too little. This article delves deep into the intricacies of available credit, exploring its impact on your credit score, and providing actionable strategies to optimize your credit utilization for a stellar financial standing.
Understanding Available Credit: A Primer
Essentially, available credit is the amount of credit left on your credit cards. It shows you how much money you can charge to your card before it reaches its maximum amount. For example, your available credit is $8,000 if your credit card has a $10,000 limit and you owe $2,000 on it.
The Intricacies of Credit Utilization: A Key Player in Credit Scores
Credit utilization, the percentage of your available credit that you’re actively using, plays a pivotal role in determining your credit score. It accounts for a significant 30% of your FICO® Score, making it a crucial factor to consider when managing your credit.
The Ideal Credit Utilization Ratio: Striking a Balance
Although the ideal credit utilization ratio cannot be determined with precision, financial experts typically advise maintaining a ratio below 30%. This implies that you should try to maintain your balances below $3,000 if your total credit limit on all of your cards is $10,000.
The Benefits of High Available Credit: A Credit Score Booster
Despite what many people think, having a lot of credit available can help your credit score. Here’s why:
- Lower Credit Utilization: With more available credit, you’re less likely to max out your cards, automatically keeping your utilization ratio low.
- Improved Credit Score: A lower utilization ratio signals responsible credit management, leading to a higher credit score.
- Enhanced Financial Flexibility: Having a higher credit limit provides you with greater financial flexibility in case of emergencies or unexpected expenses.
Strategies to Increase Your Available Credit: Expanding Your Financial Horizons
If you’re looking to increase your available credit, here are a few effective strategies:
- Request a Credit Limit Increase: Contact your credit card issuer and inquire about increasing your credit limit. A good payment history and a stable income can strengthen your chances of approval.
- Apply for a New Credit Card: Consider applying for a new credit card with a higher limit. However, be mindful of potential hard inquiries on your credit report, which could temporarily lower your score.
- Become an Authorized User: Ask a family member or friend with good credit to add you as an authorized user on their card. This can boost your credit history and increase your available credit.
The Pitfalls of Excessive Available Credit: A Cautionary Tale
While having a high amount of available credit can be advantageous, it’s crucial to use it responsibly. Overspending and accumulating high balances can quickly negate the benefits and harm your credit score.
The Bottom Line: A Recipe for Credit Score Success
There’s no magic amount of credit that a person “should” have. Take as much credit as you’re offered, try to keep your credit usage below 30 percent of your available credit and pay off your balances regularly. With responsible use and better credit card habits, you can maintain a good credit score.
How Your Available Credit Impacts Your Credit Score
How much debt you have makes up 30% of your credit score. Having said that, your credit score will probably increase if your credit utilization ratio decreases because you will have more available credit. According to an Experian report, here are the average credit utilization ratios for each FICO credit score range.
| FICO Score | Average credit utilization ratio |
|---|---|
| 300-579 (Poor) | 73% |
| 580-669 (Fair) | 51% |
| 670-739 (Good) | 33% |
| 740-799 (Very Good) | 12% |
| 800-850 (Exceptional) | 6% |
Can Too Much Available Credit Hurt Your Score?
In general, no. Your credit utilization ratio is likely to be lower the more credit you have available, which raises your credit score.
However, having more available credit could backfire if you’re the kind of person who views it as permission to take on more debt. Getting more credit can actually do more harm than good, for instance, if you ask for an increase in your credit limit and then use it all.
There are instances of fraud or identity theft where someone can max out your credit card. Therefore, asking for a lower limit on all of your cards also reduces the amount of money that can be taken from a single card, possibly leaving you with some remaining balance on the cards that were not stolen.
Which credit card companies have highest credit limits? (Highest starting line + increases)
FAQ
What is a good credit availability?
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Average Available Credit by Credit Score Range
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Credit Score Range
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Available Credit
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Fair (580-669)
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49%
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Good (670-739)
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67.4%
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Very Good (740-799
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87.6%
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What is a good amount for credit limit?
Is using 10% of available credit good or bad?
Is 20k credit limit too much?
What is a good amount of available credit?
While some financial experts recommend keeping your utilization rate at 30% or below, there is no magic threshold. In reality, you can never have too much available credit, and the more you have, the better it is for your credit score.
How much credit should I use if I have a good credit score?
While the specific amount of available credit doesn’t matter all that much, your credit utilization number is important. For a good credit score of at least 670, aim for a credit utilization ratio of 30% or less. For an exceptional credit score higher than 800, use only 7% to 10% of your available credit.
How much credit is available on a credit card?
If you have a total credit limit of $7,500 on a particular card, and an outstanding balance of $1,000, then your available credit is $6,500. The available credit amount is the maximum amount that you can charge on your credit card at the current moment.
What is a good credit limit for a credit card?
A good guideline is the 30% rule: Use no more than 30% of your credit limit to keep your debt-to-credit ratio strong. Staying under 10% is even better. In a real-life budget, the 30% rule works like this: If you have a card with a $1,000 credit limit, it’s best not to have more than a $300 balance at any time.