By David Pilley on July 19, 2010
.jpg.aspx?width=75&height=75) There are many numbers to keep track of when you open a line of credit. If you open multiple accounts, the numbers, well, multiply. These numbers also have names, and it is imperative to keep track of which is which. One important number with a name is available credit.
Available credit is just that: the available amount, or the unused portion, of credit on any given account. In relative terms, available credit is the amount of the credit limit (the maximum amount authorized to be borrowed on your account) minus the balance (previous purchases you have made). It can be easy to confuse credit limit with available credit, so always remember the difference. Credit limit is a static number; it’s not going to change. If it’s $100, it will always be $100, unless you ask your lender to change the amount of credit on your account. Available credit, though, changes after every purchase you make or after every balance you pay. The only time available credit and the credit limit are the same number is if you have paid the entire balance of prior purchases. Because it is a fluctuating number, you need to pay close attention to your available so you don’t rack up extra fees by spending more than the credit limit allows.
Available credit is a crucial factor in determining your credit score. Roughly 30% of your score is determined by the amount of available credit you have on all of your accounts. (The only factor more important is your payment history, which makes up about 35%.) The more available credit you have, the better your score may be.
Available credit is also important when determining whether you want to cancel an account. Cancelling a credit line will directly affect your available credit and, thus, will also affect your credit score. Remember that available credit makes up 30% of your credit score, so having more of it looks better. When lenders see a high amount of available credit, they see you are responsible with making proper purchases and also with paying back your debt. Therefore, when you decide to cancel an account, you might consider cancelling one with a low amount of available credit because this will affect your credit score the least. So, if you have one account with $2,000 available credit, one with $200 available credit, and a third account with $3,000 available credit, cancelling the account with $200 will decrease your total available credit the least and will also affect your credit score the least. (Though, if the card’s credit limit is $1,000, you’ll want to pay back most, if not all, of the balance first before deciding whether you want to cancel it.) Getting a credit account means paying close attention to many different numbers. If you want to maintain a healthy history, available credit is one of the more important numbers.
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