How Much Available Credit Should You Have?

How Much Available Credit Should You Have?

How Much Available Credit Should You Have?
Reading Time: 8 minutes

Credit is a somewhat mysterious aspect of personal finance. It’s a little like IQ: we all know we have a score, but not all of us know, or want to know, what it is! However, there are consequences to remaining ignorant. If you have a poor credit rating, it can affect your ability to secure a bank loan, overdraft, or mortgage. Being unable to borrow when you really need to can impede your goals and life plans or limit your options in an emergency.
Perhaps you’re worked yourself out of debt and are trying to repair your credit rating. Alternatively, you might be looking to finance a new business or buy a car. All of these are great reasons to maximize your credit score. A good indicator of your score’s health is simply how much credit you have access to, which is referred to as your available credit.


In this article, we’ll look at how you can go about optimizing your credit score by maintaining a suitable level of available credit.

What Is Available Credit?

Simply put, this is the amount of credit you can draw upon at any given time. However, it isn’t quite as simple as looking at your balance and subtracting your expenditures from the limit on your credit card.
For one thing, remember that there may be charges pending that do not yet show up on your card statement (even if you access your account online or via an app). It can take a couple of days from when you make any purchase until it shows up as a debit. It’s wise to keep hold of any checks or receipts so that you can accurately calculate how much you’ve spent each month.
Also, bear in mind that some vendors, such as gas stations, restaurants, and car rental firms, may place a “pending charge” against your account. This is a temporary hold on sufficient funds to allow for situations where your consumption might exceed the estimated charge, or where a security deposit is required, but the vendor doesn’t want to physically charge you and then have to return the fee.
For instance, when you rent a car, to ensure the rental agency can charge for accidental damage or an unfilled gas tank, they may place a pending charge on your account. These pending charges, even though they may never become actual debits, still reduce your available credit.
Here is a simple equation to help you calculate available credit = credit limit – actual and pending purchases – pending charges.

What Is A Credit Utilization Ratio?

Your credit utilization ratio (CUR) constitutes 30% of your credit score. This is the ratio of your actual monthly borrowings to your total available credit. For example, if you have a $2000 limit and have spent $400, then your CUR is 20%.
It is recommended that you keep your CUR below 30% if you want to fully optimize your credit rating. There are several ways to decrease this ratio. First, although it may seem counterintuitive, you can apply to your lender for a credit limit increase. Assuming your request is granted, and you do not make additional purchases, you would then be using a smaller proportion of available credit. You could also apply for an additional card from the same issuer. The available balance on the second card would be added to your first, thereby decreasing your CUR.
A better strategy is to pay off some of your balance, bringing the remainder down to under 30%. You should then try to stay under this limit when possible.

How Much Available Credit Should I Have?

According to the above calculation, you should try to have 70% of your credit allowance available to use at any time. It is far more important to focus on the percentage of credit not currently being used than the monetary total.
In other words, if your combined credit limits equate to $2000, and you have spent $500, this gives you a better CUR (25%) than someone who has a $50,000 limit but has spent $20,000 of it (40%).

How Does Credit Utilization Affect Your Credit Score?

As we have seen, your credit score comprises several factors (see below):

  • Payment History: Whether you pay your minimum payments on time
  • Credit Utilization Rate: Proportion of credit you are using
  • Length of Credit History: Measure of the average duration of your lender relationships
  • New Credit: How often you open new credit accounts
  • Credit Mix: The variety of credit products you hold (e.g., mortgages, loans, cards, rentals, etc.)

Source: CNBC FICO Score breakdown. FICO is one of the two credit agencies used to score consumers, and it is used for over 90% of US consumer transactions. The other agency is VantageScore, and it is worthwhile to check your credit score on their site, too.

As you can see from the above chart, 30% of the calculation is based on how much of your credit you are using.
You may think that it ought not to matter, particularly if you pay off your full balance each month, but a high degree of credit utilization can negatively impact your credit score even if your card resets to zero each month. This is because lenders often report customers’ balances to credit agencies like Experian in the few days preceding customers’ regular payments (when your balance returns to zero).
Also, bear in mind that your credit score changes from month to month. It is actively recalculated when you apply for a new credit limit or when credit agencies apply to check your score.
A good rule of thumb for improving your CUR might be to treat your credit card limit as if it were 30% of the true total. For example, you might treat a $1,000 card as if it had a $300 limit and try never to exceed that $300. However, there will always be emergency situations where this is not possible, and as you can see from the breakdown above, your credit score is about far more than just credit utilization.

How Do You Get A Higher Credit Limit?

If you are considered a low credit risk, your limit may be periodically increased by your card provider. However, you can also manually request that your credit card company increase your limit. You can usually do this over the phone, online, or via a mobile app.
Note, however, that even if you currently have a good credit score, you may be marked down and refused an enhanced limit for several reasons. If your income (actual and projected) is deemed insufficient for the requested increase, you may be refused. If this happens, you could request a smaller scale increase instead.
Do avoid applying to too many lenders for increased credit limits in a short space of time, as this is one of the key indicators of risk that FICO (and to a lesser extent VantageScore) examines.
If you have a history of bad debt, it may take several years to fully repair your credit score and become eligible for higher credit limits.

Takeaway

Available credit is not a magic bullet in terms of repairing a poor credit score, but it’s a good start for several reasons:

  • There are a range of ways to increase your available credit.
  • It is an easily measurable and trackable quantity.
  • It contributes to 30% (almost a third) of your score.
  • You can very quickly adjust your available credit, perhaps in a matter of hours and certainly in a couple of days.

Keeping an eye on available credit is an easy and valuable way to improve your credit rating while ensuring you have sufficient credit for those inevitable rainy days.
Why not look at your credit rating through Experian or Equifax so that you’re armed with the knowledge you need to make the changes that will help? You always have the right to check your credit score, and it is free. You can also pay for a credit report, which gives a more detailed breakdown of your credit behavior as well as the data the credit agency holds on you (e.g., income, employment, and address).

Frequently Asked Questions

Can you have too much available credit?

In terms of improving your credit score, the answer to this question is no.
However, you should avoid applying for too many credit cards in a short period of time, as this can make you appear to be a credit risk. It can also be risky to have a lot of access to credit if you are tempted to overspend. Be honest with yourself about how responsible you are likely to be with access to large reservoirs of credit.

How many credit cards should you have?

Again, there’s potentially no limit to the number of credit cards you can hold at once, and it won’t affect your score. However, you must ask yourself if you want the additional responsibility of juggling so many cards as well as keeping lenders up to date with any changes in your circumstances, such as your address or bank details.
The average number of credit cards held by American consumers is four, according to a 2019 Experian survey.

Is it good to have multiple credit cards?

There are certain advantages to having several cards. If you are trying to keep your CUR to beneath 30%, it can help to spread your expenditures across multiple cards.
Some cards offer 0% on balance transfers, meaning that if you find a card with a lower annual percentage rate (APR), you can transfer the balance owed on an existing card and pay zero interest on that balance for a specified number of months.
Make sure you read the fine print on any such offers and ask yourself what the lender is getting. There may be balance transfer fees and annual fees payable from the existing card provider as well.
Some cards offer additional bonuses and rewards, and if you’re traveling, it may be wise to have several different card providers to draw upon (e.g., Visa, Mastercard, and American Express).

How many credit cards is too many?

The answer to this question depends very much on how disciplined you are with credit. Ask yourself if it is sensible to have access to thousands of dollars of credit at once. You must keep track of the balance due on each, the respective APRs, credit limits, and dates repayments are due. You must ensure you are paying at least the minimum amount due on each card each month.
All of this may prove challenging if you have more cards than a Las Vegas croupier!
The total number of cards held won’t affect your credit rating, however.

Is it bad to have a lot of credit cards with a zero balance?

Cards that are not used at all could potentially affect your credit score, as the provider will eventually close any accounts that are not being used. Although this would probably not happen for several years, it could still result in the average length of your accounts diminishing.
The longer you maintain a good relationship with a lender, the more it contributes to a positive score. If you have a lot of card accounts opened and closed in short succession, this could make you appear to be a riskier candidate for future credit.

What if you have a bad credit history?

There are credit cards designed to help those with bad credit histories repair their credit scores. These are called secured credit cards.
These cards require a cash deposit, which then becomes your initial credit limit. They may also typically charge higher APR rates than other lenders. In effect, you begin by using secured credit cards like debit cards, since you’re spending your own money to begin with. However, lenders may increase your credit limit over time if you maintain a good credit history.
Bear in mind that it can take several months or years for secured card lenders to recognize an improved pattern of spending and enable additional credit. You will still be improving your credit score if you remain below your borrowing limit, though, and eventually other lenders will view you more approvingly.


Your credit score can have a big impact on your financial future. Sign up for Experian to get your credit score and credit report for free! Join millions of other Americans and get the tools you need to help understand, manage, and master your credit—in under 3 minutes. Checking your credit score with Experian won’t hurt your score.

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