What is Available Credit?

Available credit refers to the amount of credit that a cardholder can still use on their account. It is specifically calculated by taking the total credit limit on the account and subtracting the current balance owed. This calculation provides an important measure for both cardholders and issuers, as it indicates how much credit is still accessible for purchases or expenditures.

Understanding available credit is crucial for responsible credit management. Cardholders must monitor this figure to avoid exceeding their limits, which can lead to over-limit fees or negatively impact their credit score.

In contrast, while the total credit limit indicates the maximum amount that can be borrowed, and the balance reflects what is currently owed, available credit is focused on the capacity for future transactions. The notion of an amount the cardholder can loan from the bank is also misleading, as available credit is a reflection of credit usage rather than a loan from a banking entity. Thus, the correct choice precisely captures the relationship between credit limit and current balance, highlighting its importance in managing credit effectively.