Definition
Available credit is an amount that a consumer is pre-approved to borrow on a revolving credit account.
Analysis
Available credit is something found on credit card and store card accounts, as well as on a revolving line-of-credit account. It is calculated by deducing the balance from the credit limit. Cash advances from, balance transfers to, purchases, fees and finance charges will all lower the available credit. Payments and other credits will raise the available credit. Additionally, any changes to the credit limit will also change the available credit by the same amount.
Available credit is one component of the credit utilization rate that is a major portion of credit scoring. A consumer using most of their credit limits would experience a drop in their credit scores as their available credit was lowered. Similarly, paying down balances so that the most of the credit limit is available for use will increase credit scores.
Occasionally a lender may automatically adjust a credit limit in order to grant more available credit or to reduce available credit. A consumer who rapidly pays down a balance may see a credit limit increase, while another consumer who shows higher risk signs as a result of a periodic account review may see a reduction in their credit limit, thereby reducing their available credit.
