Understanding the Importance of Available Credit on Your Credit Card

Your available credit is a crucial aspect of managing your credit card responsibly. It not only determines how much more you can spend but also impacts your overall creditworthiness. At O1ne Mortgage, we understand the importance of maintaining a healthy credit profile, and we’re here to help you navigate the complexities of credit management. For any mortgage service needs, feel free to call us at 213-732-3074.

Why Is Available Credit on a Credit Card Important?

Available credit refers to the difference between your credit card’s limit and your current balance. Monitoring this can help you manage your spending and maintain a good credit score. Here’s why it’s essential:

It Determines How Much You Can Spend

Your available credit tells you how much of your credit limit is left, which directly impacts your spending power. Generally, once you reach your credit limit, your card issuer will decline new transactions. However, some issuers may allow you to go over the limit, adding the overlimit amount to your next bill’s minimum payment.

It Can Help or Hurt Your Credit Scores

While available credit doesn’t directly affect your credit score, your credit utilization ratio does. This ratio is the percentage of your credit limit that you’re using. For example, if you have a $5,000 limit and a $500 balance, your utilization ratio is 10%. Lower utilization rates are better for your credit scores, so having more available credit can be beneficial.

It Might Affect Your Creditworthiness

Creditors and credit scoring models may consider trends in your credit report, such as changes in your credit card balances and how often you exceed your credit limit. A decreasing available credit over time might hurt your creditworthiness. Additionally, high credit card balances can increase your debt-to-income ratio (DTI), affecting your ability to qualify for new credit, including home or auto loans.

How to Increase Your Available Credit

Increasing your available credit can be achieved by paying down your current balance, managing your balance throughout the month, or increasing your card’s credit limit. Here are some strategies:

Pay Down Credit Card Debt

Paying down your credit card balances can free up available credit and improve your credit scores. Consider these options:

• Debt snowball strategy: Focus on paying off the card with the lowest balance first while making minimum payments on other cards. This approach can provide quick wins and motivation.
• Debt avalanche strategy: Pay off the card with the highest APR first to save on interest charges.
• Debt consolidation loan: Use a new loan to pay off credit card balances. This can offer a lower interest rate and fixed monthly payments.
• Balance transfer credit card: Transfer balances to a new card with an introductory 0% APR offer. This allows you to pay down the balance without accruing interest during the promotional period.

Manage Your Balance Throughout the Month

Credit card companies often report your balance and credit limit at the end of each billing cycle. Managing your available credit can result in a lower balance on your credit report and a lower credit utilization rate. You can do this by:

• Using your credit card less often or for smaller purchases
• Making an early payment before the end of your billing cycle
• Paying your credit card bill weekly or biweekly instead of monthly

Increase Your Credit Limit

Increasing your credit card’s limit can give you more available credit. You can try:

• Asking for a credit limit increase: Wait until your income or credit scores have increased before asking. The request might result in a hard inquiry, temporarily affecting your credit scores.
• Updating your income information: Update your credit card account with your new income whenever you get a raise. This could prompt the issuer to increase your credit limit without you asking.
• Transferring credit limits: Transfer credit limits between your cards from the same issuer. This won’t increase your overall available credit but can be helpful if you prefer using a specific card.

Ways Your Credit Card Can Help You Build Credit

Most credit card issuers report your account to all three credit bureaus, helping you build credit and improve your scores:

• On-time payments can help you build a positive payment history.
• A lot of available credit and a low utilization rate can improve your credit scores.
• If the card doesn’t have an annual fee and you pay your bill in full every month, you can keep it open without paying fees or interest, increasing the length of your credit history.
• Having an open and active credit card account can add to your credit mix.

While you don’t necessarily need a credit card to have good credit, they offer valuable benefits and protections, making them a safer payment option than debit cards.

Check Your Credit Card Offers for Free

Increasing your overall available credit can also be achieved by opening a new credit card. Compare offers and terms to find the right fit. Check your credit scores first to see if you’ll likely qualify. You can use tools like Experian’s card comparison tool to compare credit cards and get matched with offers based on your unique credit profile.

At O1ne Mortgage, we’re committed to helping you achieve your financial goals. For any mortgage service needs, call us at 213-732-3074. Our team of experts is here to guide you every step of the way.