You have probably heard of the term Available Credits and Credit Limit If you have been wondering how these two terms differ from each other, you are on the right page. Let’s start by defining each of these terms and take it from there for a better understanding.
Available credit is the amount available you have to spend. Available credit is based on the credit limit less the current balance less any pending transaction
The credit limit is the amount of credit that is available on your card account. You have access to spend up to this limit.
Available Credit Explained
When you stay within your credit limit, it means you know your available credit at all times. Based on your credit card terms, you may face a penalty if you go over your credit limit or your card issuer may simply stop accepting new charges.
As earlier stated, your available credit is the amount of your credit limit you can still use for purchases. The amount will change when your balance and credit limit change. Thus if your available is $0,it implies you do not have any credit left to make purchases. This may happen if your credit card is maxed out, your payment hasn’t cleared or your credit card payment is delinquent. On the other hand, having a balance on your credit card would make your available credit lower than your credit limit. Also, pending transactions that have not posted to a credit card will further lower your available credit.
How to Check Your Available Credits
Here are a few ways you can check your available credit:
- You can call your credit card issuer through the number on the back of your credit card.
- Sign in to your online account via your computer or mobile browser.
- You can also download your credit card issuer’s mobile app to check your available credit and other account details.
Credits Limit Explained
As aforementioned a credit limit is the maximum amount that you can spend with a credit card. If you have a high credit limit, it means you are spending more than can be good for your credit scores. You can also overspend and rack up a lot of debt.
Your credit limit is the maximum amount you can borrow using your credit card as determined by your credit card issuer.
Anytime you purchase something, the amount of the purchase gets added to your credit card balance. To get your credit limit, you are to subtract your balance from your credit limit. This is to help you figure out how much you can spend using the card. When you make a payment, your balance goes down, and the amount you can spend increases by that payment amount.
Your credit card limits are important for some reasons. With a higher credit limit, you have more flexibility when it comes to using your card. However, this could also make you overspend and end up being in debt. The amount of your limit you can use can also have an effect on your credit scores.
How to Check Your Credit Limit
If you are wondering what your credit card limit is, you can find it by signing into your credit card account. Most issuers also display this information on your credit card statement.
How Do Available Credits and Credit Limit Differ?
The basic difference between the two terms (i.e.) available credit and credit limit is tied to the account balance of a credit card or other debt. These two, represent the relationship between current spending power and total spending power. Thus, as the borrower taps their credit line and balances increase, the available credit decreases. Immediately the account balance reaches the credit limit, the account is “maxed out” and available credit is zero. However, if the individual’s account balance is zero, available credit and credit limits are equal.
Immediately you reach a limit, and there’s no more available credit, credit card companies will typically decline any further transactions. On the other hand, some credit card companies allow borrowers to increase account balances just beyond credit limits offered that the borrower has before now agreed to the terms in writing. Now the increase beyond the credit limit is sometimes a result of charges and sometimes a result of interest, fees, or penalties.
Most credit card companies, on the other hand, charge stiff penalties for accounts with balance above the credit limit-again, as long as the borrower agrees to this in writing. When the need arises, consumers may be tempted to sign any document that offers them access to the required cash. Now, note that you can’t be charged an over-limit fee if the only reason that you have gone over the limit is because of interest charges or fees.