How Much Credit Should I Have, And Does It Impact My Credit Score? (2024)

At first glance, it might not seem like you can alter how much available credit you have. After all, your credit card company assigns you a limit when you open a card with little to no input from you about how much credit you’d like. But in reality, there’s a lot you can do to affect your available credit. You can request a credit limit increase or decrease, pay down your balance or apply for another credit card.

We will show you why you would want to change your available credit and how much you should have.

What Is Available Credit?

Your available credit is the amount of money you have available through your credit cards given your current balance. For example, if your credit limit is $2,000 and your balance is $500, your available credit is $1,500 ($2,000 – $500). If you have two cards, each with a $1,500 limit and a balance of $200 on one card, your available credit is $2,800 ($1,500 + $1,500 – $200).

What Is a Good Amount of Available Credit?

There’s no set amount of available credit that’s good to have. In general, the more available credit you have, the better, as long as you use it responsibly.

During any application process, most lenders will look at your credit utilization ratio instead of your available credit. Your credit utilization is the ratio of your overall balance to your overall credit card limit—it shows how much credit you’re using. This gives them an accurate understanding of your specific credit situation.

For example, if you have a credit limit of $2,000 and a balance of $500, your credit utilization ratio would be 25% ($500/$2,000); if you have two cards, each with a $1,500 limit and an overall balance of $200, your ratio would be nearly 7% ($200/$3,000).

Most financial experts recommend keeping your credit utilization ratio below 30%, and the lower, the better.

How Your Available Credit Impacts Your Credit Score

How much debt you have makes up 30% of your credit score. With that being said, the lower your credit utilization ratio, the higher your score is likely to be because you’ll have more available credit. According to an Experian report, here are the average credit utilization ratios for each FICO credit score range.

Can Too Much Available Credit Hurt Your Score?

In general, no. The more available credit you have, the lower your credit utilization ratio is likely to be, and that translates into a higher credit score.

However, if you’re the type of person who looks at your available credit as a free license to increase your debt, more available credit could backfire. For example, if you request a credit limit increase and then go out and spend up to that limit, access to more credit can hurt you more than it helps you.

There are instances of fraud or identity theft where someone can max out your credit card. So requesting a lower limit across your cards also limits the amount of funds that can be stolen from a single card, while perhaps leaving you some available balance with the remaining cards that were not stolen.

How Much Total Credit Should You Have?

The amount of total credit you should have depends on your situation.

Some people like the idea of using their credit card as a de-facto emergency fund, and so they prefer to have enough credit to pay for three month’s worth of living expenses. Keep in mind, it’s much better to have an emergency fund tucked away safely in a savings account because you’ll earn interest on your savings rather than pay interest to a lender later. But if you don’t have that yet, this could be a decent (albeit expensive) plan during a temporary setback.

Other people prefer to have a smaller amount of total credit so they’re not tempted to rack up a big balance. Remember, though, it’s not the total amount of credit you have that matters—it’s how much of your total credit you use. If you opt for this approach, it’s still a good idea to keep your balances low relative to your total credit limit. You can request the card issuer to lower the available credit during the time you are approved for a card.

How to Use Credit Responsibly

If you’re like most people, it’s well within your ability to earn a good credit score as long as you do a few things right. When it comes to available credit, here are some steps that can help improve or build your credit score:

• Ask for a credit limit increase. Most credit card companies are willing to increase your credit limit if you’ve been a responsible cardholder. As long as you don’t spend more money, this gives you an instant boost to your available credit and lowers your credit utilization ratio.
• Pay down your balances. If you’re carrying a balance, the best that you can do is pay it down. This also increases your available credit and can help improve your credit.
• Pay off your card in full each month. The best long-term habit you can do is to pay off your credit card in full each month by the due date. An easy way to achieve this is to sign up for autopay or make multiple payments throughout the month.
• Open a new credit card. This also boosts your available credit because it will increase your overall credit limit.
• Keep old cards open. If your old credit cards don’t have an annual fee, it’s a good idea to keep them open. If you close them, you lose that available credit and your credit utilization ratio may increase.