Available Credit: What It Means and Why It Matters
Definition & Meaning
Available credit refers to the amount of credit that a customer can use for purchases on their credit accounts, such as credit cards, open accounts, or overdraft accounts. It is calculated by subtracting the current balance from the total credit limit assigned to an account. For example, if a credit card has a limit of $5,000 and the current balance is $2,000, the available credit would be $3,000. This figure is significant in credit scoring, as it reflects a customer's ability to manage credit responsibly.
Legal Use & context
Available credit is commonly used in financial and credit law. It plays a crucial role in assessing an individual's creditworthiness, particularly in areas such as:
- Loan applications
- Credit card approvals
- Banking and overdraft agreements
Understanding available credit is essential for individuals managing their finances and for legal professionals advising clients on credit-related matters. Users can utilize legal templates from US Legal Forms to create documents related to credit agreements or disputes.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A person has a credit card with a limit of $10,000 and a balance of $4,000. Their available credit is $6,000, indicating they have room to make additional purchases without exceeding their limit.
Example 2: A customer applies for a loan and has a credit limit of $15,000 across various accounts. If their total balance is $10,000, the available credit is $5,000, which may affect the lender's decision on the loan application. (hypothetical example)