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What is Available Credit?

Today, let's discuss what your available credit really is and means.

Literally, your available credit is the difference between your credit limit and your current account balance. It is what you have left to charge on your credit account. This can and likely is different across all your different types of credit or debt.

For example, let's say you have one credit card with a limit of $3,500 and a second card with a limit of $11,000. Your account balance on the cards respectively is $1,256 and $8,712. Your available credit is actually $4,532. $2,244 of which is on the first card, $2,288 is on the second card.

To some that seems like a license to shop. Hey, you have over $4,000 of credit left! To others that number can be worrying. Especially to those that use credit as a kind of emergency fund. The companies that calculate your credit score also are a bit wary of low available credit. To them it means you routinely borrow as much as you can which can increase the risk you won't be able to pay it back in a timely manner. This can mean your score goes lower since you seem more risky a person to lend money to.

To increase your score, keeping a lower, regular available credit can help show you are more responsible. This can reflect in a higher credit score. Keeping that value lower and more regular will require more intentionality on your part. You will be challenged to make purchases not on a whim, but according to a plan.

Moving away from just swiping a card because it is easier to swiping a card on purpose is not an easy path. Old habits and rationales will creep up and tempt you. You may even fail to resist the temptations. We all fail and don't live up to our goals. So, I encourage you to pick yourself up and try again.

Perhaps a good question to ask yourself when you are tempted is, which do you want more, the higher credit score, or to continue spending as you want?

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