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How much available credit should you have?

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How much credit should you have? It really depends on what you do with it. Since your credit score is tied to the percentage of your available credit that you’re currently using, it’s a good idea to accept as much credit as lenders are willing to offer you—as long as you pay off your balances regularly and keep the amount of credit you’re currently using below 30 percent.

If you have trouble paying off your balances or consistently run up against your credit limit, you might want to avoid taking on additional lines of credit to reduce the risk of escalating debt. However, if you’re managing your credit responsibly, asking for a higher credit limit or opening a new credit card can be a smart move. In fact, increasing your available credit is a great way to increase your credit score.

What is a credit limit?

A credit limit is the maximum amount of money you are allowed to borrow from a line of credit. If you have a credit card with a $5,000 credit limit, for example, you can carry a balance of up to $5,000 on that card.

What happens if you go over your credit card limit? It depends on whether you’ve opted into what is commonly called “over-limit protection.” If you haven’t opted in, your credit card will be declined and the charge won’t go through. If you have signed up for over-limit protection, your charge might go through—but you might also get hit with an over-limit fee.

Some people don’t realize that interest on unpaid balances also counts towards your balance (as do fees and penalty charges). You may think that you’ve only made $4,000 in purchases on a card with a $5,000 limit, for example, but if you’ve only been making the minimum payment each month, your credit card’s interest could start pushing you closer and closer to your credit limit.

How much credit should you have?

Credit card issuers determine your credit limit in one of two ways: either they offer credit cards with predetermined credit limits (which means that everyone who gets accepted for the card is offered the same credit limit) or they give you a customized credit limit based on your credit history and your credit score.

Either way, the amount of credit available to you is probably going to reflect your current credit health. If you have bad credit, for example, you’re probably only going to be eligible for credit cards with low credit limits. If you have good or excellent credit, you’ll probably be offered significantly higher lines of credit—and you can also request credit limit increases if issuers aren’t already boosting your credit limit on a regular basis.

There’s no one answer to the amount of credit you “should” have. It’s a good idea to accept as much credit as lenders are willing to offer you, as long as you’re in a position to use that credit responsibly.

How much credit should you use?

Although it’s to your advantage to have as much credit as lenders are willing to give you, that doesn’t mean that you should use all of your available credit. In fact, using too much credit could hurt your credit score.

Why? Because 30 percent of your credit score is determined by your credit utilization ratio. This ratio represents the amount of credit you have available to you versus the amount of credit you are currently using. For instance, if you have $10,000 in available credit and a $5,000 balance, your credit utilization ratio is 50 percent.

To gauge whether your card balances are dampening your credit score, check out Bankrate’s credit utilization ratio calculator and take the next steps toward improving your financial opportunities.

One of the best ways to improve your credit score is to lower your credit utilization ratio. A good rule of thumb is to keep your credit utilization under 30 percent. This means that if you have $10,000 in available credit, you don’t ever want your balances to go over $3,000. If your balance exceeds the 30 percent ratio, try to pay it off as soon as possible; otherwise, your credit score may suffer.

If you use a credit monitoring service to track your credit score, you might notice that your credit score goes up or down by a few points every time you use or pay off your available credit.

The bottom line

There’s no magic amount of credit that a person “should” have. Take as much credit as you’re offered, try to keep your credit usage below 30 percent of your available credit and pay off your balances regularly. With responsible use and better credit card habits, you can maintain a good credit score.

Written by
Nicole Dieker
Personal Finance Contributor
Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor.