The difference between a credit card’s available credit and its credit limit is the relationship between the cardholder’s current spending power and his or her total spending power. A credit limit is the maximum amount that can be charged to a credit card overall. Available credit is the credit limit minus any unpaid balance, including pending charges that have yet to post to the account. Your available credit will increase by the amount of each payment you make. A credit card’s credit limit and available credit match when the balance is $0 or the card is “maxed out.”
Note that while you can spend up to your entire credit limit, bringing your available credit to zero, it’s not a good idea to do so. A maxed-out credit card will raise your credit utilization, which will damage your credit score. The general rule is to have the balance listed on each of your credit card statements amount to less than 30 percent of the card’s credit limit. That would leave you with more than 70 percent available credit on each account. A maxed out credit card, on the other hand, could leave you with no emergency funds. If you have a big chunk of available credit, you can charge whatever’s needed to deal with an unexpected circumstance such as a hospital bill or a car repair.
Here’s what happens when you try to spend more than your available credit:
If you try to make purchases on a card with no available credit, there may be consequences. In most cases, the transaction will simply be denied. Other cards may process it but then hit you with an over-limit fee (if you’ve opted-in for the ability to spend above your limit) and maybe even reduce your limit, too. A high penalty interest rate might also apply, perhaps canceling any low introductory APR previously in effect. Over-limit policies vary by issuer, so be sure to review your card’s terms and conditions or contact customer service for specifics.
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