Difference between Available Credit and Credit Limit

Available Credit

Available credit is defined as the total amount that a borrower has left for spending, and it can be calculated by deducting the borrower’s purchases (along with interest on them) from the total credit limit on their account. It is related to the account balance remaining in a credit card or any other form of debt instrument. Available credit is the actual difference between the total credit limit and the amount which a borrower has accumulated via their purchases (along with the interest on their purchases).

In the case of the credit card holders, the available credit is the total amount left after deducting the purchases (and the interest on those transactions) from the available maximum credit limit on a person’s credit card. For credit card holders, it is possible that the available credit can fluctuate. It can decrease or increase based on the purchases and payment history of the borrower. The borrower must also make the monthly payments for both the principal amount and the interest as well. With credit cards or any other revolving credit, the payments have to go towards increasing the available credit for the borrower, which they can also use for additional purchases. In the case of revolving credit accounts, if a borrower makes any purchase, then their available credit will come down. If they make payments, then their available credit will go up.

Credit Limit

The term credit limit also refers to the maximum amount of credit that a financial institution can provide for a client. Any lending institution can extend a credit limit on the credit card or line of credit but up to a certain limit. The lenders usually set the credit limits for an applicant based on the information provided by them. It is a factor that affects the consumers’ credit scores along with impacting their ability for obtaining the credit in future.

Difference between Available Credit and Credit Limit

Both the available credit and credit limit have an important role in the business world. Firms can use these two instruments to take care of their financing needs. However, it must be noted that there are some areas of difference between available credit and credit limit, and we should understand them to get a better perspective of the subject:

Available Credit

Credit Limit

Definition

Available credit is defined as the total amount that a borrower has left for spending, and it can be calculated by deducting the borrower’s purchases (along with the interest on them) from the total credit limit on their account.

The term credit limit also refers to the maximum amount of credit that a financial institution can provide for a client. Any lending institution can extend a credit limit on the credit card or line of credit but up to a certain limit.

Credit Score

The available credit will impact the credit score.

The credit limit will not impact the credit score.

Conclusion

There are a number of points of difference between available credit and credit limit. But both of them perform a vital role in the financial markets. These financial instruments can play an important part in the growth of lending, which is important to sustain several industries in the country.

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