How You Can Increase Your Available Credit

Available credit is the amount of credit you can still use on a revolving credit account, such as a credit card. Understanding and improving your available credit can significantly impact your financial health and borrowing capacity. This involves recognizing how lenders assess creditworthiness and implementing practices to enhance your credit standing.

Defining Available Credit

Available credit represents the portion of your credit limit that remains unused. It is calculated by subtracting your current balance from your total credit limit. For instance, a credit card with a $5,000 limit and a $1,000 balance has $4,000 available credit. This amount fluctuates as you make purchases and payments.

It directly impacts your credit utilization ratio, the percentage of your total available credit currently used. A low credit utilization ratio, ideally below 30%, indicates responsible credit management and positively influences your credit scores. A high utilization ratio suggests greater reliance on borrowed funds, signaling increased risk to lenders and negatively affecting creditworthiness. Maintaining a healthy available credit balance demonstrates effective debt management.

How Available Credit is Determined

Lenders assess several factors to gauge creditworthiness and ability to repay. Your credit score is a primary consideration, representing your credit risk based on information from Experian, Equifax, and TransUnion. A higher score indicates lower risk, leading to higher credit limits.

Payment history is another significant factor, reflecting consistency in making on-time payments. A strong history demonstrates reliability and can lead to more favorable credit terms. Lenders also examine your debt-to-income (DTI) ratio, comparing total monthly debt payments to gross monthly income. A lower DTI suggests sufficient income to manage additional debt. Income and employment stability also provide assurance to lenders. The length of your credit history, with responsible use, is viewed favorably. The types of credit you use, such as a mix of revolving accounts and installment loans, can demonstrate your ability to manage diverse financial responsibilities. Lenders may also consider limits on other credit cards.

Methods to Increase Available Credit

Several proactive steps can increase your available credit, improving utilization and financial flexibility.

• Request a Credit Limit Increase: You can request a credit limit increase from current card issuers, often online or by phone. You may need to provide updated income information. Lenders evaluate payment history, current income, and credit score, approving requests for accounts open at least six months with responsible use.
• Pay Down Existing Debt: Reducing outstanding balances on credit cards directly increases available credit. This action also significantly improves your credit utilization ratio, a major factor in credit scoring. Focusing on paying down balances, especially on cards with high utilization, yields immediate benefits.
• Open New Credit Accounts: Opening new credit accounts can increase total available credit, but requires careful consideration. Applying for new credit results in a “hard inquiry” on your credit report. A single hard inquiry has a minimal and temporary impact, remaining on your report for up to two years. Multiple hard inquiries in a short period could signal higher risk.
• Use Secured Credit Cards: For individuals with limited or poor credit history, secured credit cards offer a pathway to building credit. These cards require a refundable security deposit, which serves as your credit limit, ranging from $200 to $5,000. Responsible use, including on-time payments and low balances, is reported to major credit bureaus, helping establish a positive credit history that can lead to unsecured credit with higher limits.

Cultivating a Strong Credit Profile

Building and maintaining a strong credit profile is foundational for securing higher available credit.

• Consistent On-Time Payments: Payment history is the most influential factor in credit scoring models. Making at least the minimum payment by the due date on all credit accounts demonstrates reliability.
• Manage Credit Utilization: Keep your total credit utilization ratio below 30% of your available credit limits across all revolving accounts. For example, if your total credit limits are $10,000, aim to keep combined balances below $3,000. Many with excellent credit scores maintain utilization in the single digits.
• Review Credit Reports Regularly: Reviewing your credit reports helps ensure accuracy and protects against identity theft. The Fair Credit Reporting Act (FCRA) entitles you to one free credit report annually from each of the three major credit bureaus—Experian, Equifax, and TransUnion—accessed through AnnualCreditReport.com. Check your reports at least once a year, or more frequently if planning a major financial decision or suspecting fraudulent activity.
• Avoid Unnecessary New Credit Applications: Avoiding unnecessary new credit applications minimizes the impact of hard inquiries on your credit score. While a single inquiry has a minor effect, frequent applications can accumulate and lower your score. Strategic timing of applications, especially for major loans, can group multiple inquiries into a single event for scoring purposes.
• Maintain a Mix of Credit Types: Maintaining a mix of credit types, when appropriate, can contribute to a robust credit profile. This involves a combination of revolving credit, like credit cards, and installment credit, such as auto or student loans. Demonstrating responsible management across different credit products signals versatility to lenders, though it is not advisable to open accounts solely for this purpose.