The terms balance and available credit are often used interchangeably when discussing credit scores and credit utilization. However, there is a big difference between the two concepts.
Your balance is the amount of money you owe on your credit card at any given time. Your available credit is the amount of money you have available to spend on your credit card, which is equal to your credit limit minus your balance.
Your balance has a direct impact on your credit score, because it makes up 30% of your credit utilization ratio. This ratio is a key factor in determining your score. In general, the lower your balances are relative to your limits, the better for your score. So if you're trying to improve your score, paying down outstanding balances should be a priority.
Availablecredit, on the other hand, does not have a direct impact on your score. But it can indirectly affect it by giving you more flexibility when it comes to managingyour debt-to-credit ratio. This ratio is another key factor in determiningyour score, and it measures how much of your availablecredit you're using at any given time. The lower this number is, the betterfor your score (generally speaking). So if you have a high balance but lowavailable credit, that's actually bad for yourscore – even though you technically have more moneyto spend! – because it means you're closer to maxing outyour cards and damaging your utilization ratio.(This scenario would also result in high interestcharges.) Conversely, havinga low balance but high availablecredit can help improve this importantratio – and therefore boost yoursocre somewhat indirectly.(Of course, ifyou're carrying any sort of Balanceon these cards withhigh Available Creditlimits then this will still negativelyimpact both ratios!)