What is credit utilisation?

Key takeaways

• Credit utilisation is the percentage of your available revolving credit – such as credit cards and overdrafts – that you’re using

• Lenders may consider credit utilisation when assessing your creditworthiness

• Aim to spend no more than 30% of your overall credit limit

• A high utilisation rate can harm your credit score, making it harder to borrow

What is a credit utilisation ratio?  

Your credit utilisation ratio is the percentage of your available credit card and overdraft limits that you’re using.

For example, if you have a credit card with a £5,000 limit and a balance of £1,000, your credit utilisation is 20%.

If you have two cards with a combined credit limit of £10,000 and balances totalling £2,000, your overall credit utilisation is also 20%.

Your credit report may show information about your credit limits and balances, which can be used to calculate your credit utilisation.

A lower credit utilisation ratio is generally viewed more favourably by lenders and can be beneficial for your credit score.

Why is your credit utilisation ratio important?

Your credit utilisation ratio matters because it shows how heavily you’re relying on credit.

A high ratio indicates that you’re using a large proportion of your available credit, leaving you with less financial headroom if an unexpected expense arises.

It could become harder to keep up with repayments if your spending increases or your financial circumstances change, and if you need to borrow more, you might find lenders unwilling to approve applications or offering you poorer deals.

A high ratio can also negatively affect your credit score, because it suggests to lenders that you might be financially stretched. Whereas a lower credit utilisation ratio means you have more of your available credit unused, giving you greater financial flexibility and potentially helping your credit score.

How does credit utilisation affect my mortgage or loan application?

Credit utilisation can affect how lenders view your application. A high utilisation ratio may suggest you’re more reliant on borrowing and could affect your chances of being accepted, the interest rate or the amount offered.

A lower ratio can indicate you’re managing your available credit responsibly. However, lenders also consider your income, affordability, existing debts and other factors when assessing your application.

How is credit utilisation ratio calculated?  

Your credit utilisation ratio is worked out by adding up your revolving credit balances and the limits on those accounts.

Your revolving credit balance is the amount you currently owe on your credit cards and overdrafts. It will increase when you spend or borrow more and decrease when you make payments. Add together your balances, divide this by your total credit limit and multiply by 100 to express your credit utilisation as a percentage.

For example, let’s say your only line of credit is a credit card with a £1,000 limit. If your balance is £400, your credit utilisation ratio would be 40%. If you then spend another £100 without clearing any of the balance, your credit utilisation would increase to 50%.

Use our credit utilisation ratio calculator

Simply tell us your credit limit and outstanding balance on any credit cards that you have, as well as any bank account overdraft, and we'll calculate your credit limit.

What is a good credit utilisation ratio?  

The lower your credit utilisation ratio, the better. As a general rule of thumb, keeping it below 30% is considered a good target and may help protect your credit score. However, there’s no universal threshold at which utilisation will damage your score, as different credit reference agencies and lenders use different scoring methods.

What factors determine my credit utilisation rate?  

Your credit utilisation rate is based on how much of your available credit you’re using. Several factors can affect the figure:

• Your credit limits. The higher your total credit limits, the more credit you have available to use. For example, a £1,000 balance on a card with a £5,000 limit gives you a 20% utilisation rate.

• Your outstanding balances. Your balances are compared with your available credit. As your balance increases, so does your utilisation rate. Paying down your balance can reduce it.

• Your other credit cards. If you have more than one credit card, your overall utilisation can take account of the combined balances and credit limits across your cards.

• Changes to your credit limits. If a lender increases or reduces your credit limit, this can change your utilisation rate even if your spending stays the same.

• When your balances are reported. Credit card balances can be reported to credit reference agencies at different times, so the balance appearing on your credit report may not always be the same as your current balance.

How frequently is my credit utilisation ratio reported to credit agencies?

Credit utilisation is typically reported to credit reference agencies monthly. However, lenders can report your balance and credit limit at different times, so the information on your credit report may not reflect your most recent balance.

This means your reported utilisation can differ from the amount you currently owe.

How can I lower my credit utilisation ratio?  

What are the biggest risks of having a high credit utilisation rate?  

Low credit score:A high credit utilisation rate can contribute to a poor credit score, which is likely to make it harder to borrow. A bad credit rating will make it harder to get approved for credit and if you are accepted, then expect higher interest rates and lower credit limits.

Refused credit:Because a high utilisation rate can hurt your credit score this can also result in failing a credit check. There are times when you might need credit, maybe you need some breathing space between paydays, or you need to make an emergency purchase. Credit products can be a handy money management tool when used wisely and being unable to access credit can deny you that help. So, try your best not to use too much of the credit you have, as it could hamper your chances of being approved in the future.

Credit overreliance: Credit can be useful; it can make big purchases more affordable. However, using credit too much can cause problems. Keep in mind that with any purchase you make on credit, you’re owing an amount to the lender. Using a lot of your available credit can make it hard to keep up with repayments and signal to lenders you’re not in control of your finances.

Is credit utilisation the same as debt-to-income ratio?

No. Credit utilisation measures how much of your available revolving credit you’re using, while your debt-to-income (DTI) ratio compares your debt commitments with your income.

Both can help lenders assess your financial position, but they measure different things. Find out more about how DTI works in our guide to debt-to-income ratio.

Alan Cairns
Senior Content Editor

Our expert says...

Keeping your credit utilisation low is a sensible way to help protect your credit score, particularly if you’re planning to apply for significant borrowing, such as a mortgage or car loan. As a general rule of thumb, keeping it below 30% can be beneficial, although there’s no universal threshold that applies to everyone. The important thing is to only borrow what you can afford to repay and avoid relying too heavily on available credit.

Keep on top of your credit score with Credit Score

With MoneySuperMarket’s free Credit Score, you can check your credit score and report as often as you like, at no cost.

Track changes to your score, get alerts about potentially suspicious activity and stay on top of what’s happening on your credit file.

You’ll also get regular updates, along with practical tips and advice to help you understand your score and take steps to improve it over time.