What is credit utilisation and the ideal percentage?

Understanding how credit utilisation works and how it can impact your credit score is important.

What is credit utilisation? Learn more
How to improve your credit utilisation Tips

Your credit utilisation rate is one of the factors lenders consider when you apply for credit. If your credit utilisation is high, this can have a negative impact on your credit score. It can also make lenders more reluctant to let you borrow additional funds, or if you are offered credit, you’ll likely be charged a higher interest rate.

What is credit utilisation?

Credit utilisation refers to what percentage of your credit card limit you are currently using. It’s calculated based on your revolving credit, which means credit lines that have no set end date, such as a credit card. A personal loan, on the other hand, has a set term by which the loan must be repaid.

Having a low credit utilisation rate or ratio indicates to lenders that you’re only using a small amount of the credit that’s available to you. Lenders might be more willing to let you borrow additional funds as a result. By contrast, if your credit utilisation ratio is high, this could suggest that you’re already relying too heavily on credit, and any additional credit applications you make are more likely to be rejected.

Bear in mind that your credit utilisation rate isn’t just based on 1 credit card. If you have several credit cards, your utilisation rate is taken from the total amount of credit available to you across all those cards.

Credit utilisation example:

So, say you have 2 credit cards with a combined credit limit of £2,000, and your total balance is £1,000. That means your credit utilisation is 50%.

What is a “good” credit utilisation percentage?

The general consensus is that you should aim to keep your credit utilisation ratio below 30%. This view is shared by the 3 main credit reference agencies (CRAs): Experian, Equifax and TransUnion.

A credit utilisation percentage of 30% or below (ideally between 20% and 25%) is viewed positively by lenders and can help increase your credit score.

If your credit utilisation rate is over 50%, this is regarded as a high credit utilisation ratio and may be flagged on your credit report. This will certainly be the case if it’s over 75%.

You might think having a credit utilisation ratio of 0% will work to your advantage, but in fact, the opposite might be true. Lenders want to see that you use credit responsibly, which means that if you don’t use your credit card, they won’t be able to assess how reliable you are as a borrower.

Why does your credit utilisation ratio matter?

Your credit utilisation rate matters because it’s one of the tools lenders use to evaluate how well you’re managing existing debts and whether they are willing to offer you further credit.

A high credit utilisation ratio could indicate that you’re spending more than you can afford and might struggle to keep up with your regular repayments. A low credit utilisation ratio, on the other hand, can be a sign that you can repay what you owe because you’re not overspending and might be able to handle additional debt.

Bear in mind that when assessing creditworthiness, lenders also look at other factors, such as how well you’ve borrowed in the past. Your credit utilisation ratio is only one part of their assessment.

How does credit utilisation affect my credit score?

A high credit utilisation ratio means that you’re using a lot of the credit available to you, and this could suggest you’re struggling financially. This can have a negative impact on your credit score as you could be viewed as a higher risk.

However, if your credit utilisation is low, you’ll have access to funds you’re not actually using, which suggests you’re in control of your finances and don’t rely on borrowing. As a result, your credit score is likely to be higher.

How can I improve my credit utilisation ratio?

There are several steps you can take to improve your credit utilisation rate:

  • Pay down debt. If you can pay off some of your existing credit card debt, your credit utilisation ratio will fall, as it will free up some of the credit available to you.
  • Carry out a balance transfer. You could also transfer some of your existing card debt to a 0% balance transfer credit card. This can help you pay off your debt faster and cheaper, as you’ll avoid paying interest for a number of months.
  • Apply for a credit limit increase. If you’re eligible for a higher credit limit, this will lower your credit utilisation ratio without the need to pay off existing debt. Avoid doing this too often, though, as each request for a higher credit limit is reported on your credit record.
  • Apply for another credit card. You could also think about opening a new credit card account, as this will lower your credit utilisation ratio. However, this will only work if you resist racking up a high balance on your new card.

If you’ve got an old credit card you no longer use, you might be tempted to cancel it. But keeping it open can actually help your credit utilisation rate because it boosts your total available credit.

However, there are downsides to keeping your old account open, too. For a start, it can encourage you to spend on the card again and build up more debt (which will also increase your credit utilisation ratio). There’s also a higher risk of fraudulent use, so you’ll need to keep a close eye on your monthly statements.

To help you work out what’s best for you, consider the above factors carefully. If you think keeping the account open could result in you spending on the card again, for example, it might be safer to cancel it.

Example: Jo’s credit utilisation

Jo has 3 credit cards with a combined credit limit of £3,000. Jo is currently using £900 of this limit across 2 of the cards, so her credit utilisation rate is 30%.

Jo decides to cancel the credit card she’s not using. However, by doing so, her overall credit limit shrinks to £1,800 and her credit utilisation ratio jumps to 50%.

* This is a fictional, but realistic, example.

How do I find out my credit utilisation rate?

You can find out your credit utilisation rate by dividing the total amount you owe on your credit cards by the total credit limit available to you. You might need to dig out your latest credit card statements to help you work this out.

You then multiply your result by 100.

For example, let’s say Credit Card A has a credit limit of £1,500 and you’ve used £200 of this. Credit Card B has a credit limit of £2,500 and you’ve used £1,000 of this.

You’ll need to divide the total debt of £1,200 (£200 + £1,000) by the total credit limit of £4,000 (£1,500 + £2,500), which is 0.3. Multiply this by 100 and your answer is 30%.

Bottom line

Understanding your credit utilisation rate is important as it can have an impact on your credit score and affect your chances of getting accepted for credit again in the future. It’s sensible to keep an eye on your credit utilisation rate, and if you notice it creeping up above 30% (and certainly above 50%), take steps to bring it back down again.

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