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Credit utilisation ratio

What is a credit utilisation rate?

Ella Jukwey
Written by  Ella Jukwey
Jonathan Leggett
Reviewed by  Jonathan Leggett
5 min read
Updated: 21 Mar 2024

Your credit utilisation ratio affects your credit score. Our guide explains how it's worked out and what ratio will help your credit rating

What is a credit utilisation ratio?  

Your credit utilisation ratio is the percentage of your total available credit that you’re using. Your credit report will show your credit utilisation ratio and credit reporting agencies use that figure to calculate your credit score.  The percentage will be based on the balances of your credit accounts. A lower credit utilisation ratio is preferred by lenders. 


Why is a credit utilisation ratio important?  

Your credit utilisation ratio is important because this influences your credit score. A high credit utilisation ratio can give lenders the impression that you are relying too much on credit. It’s also important to remember that when you use credit, you’re borrowing money that you will need to pay back at some point. A high credit utilisation ratio could make it harder to stay in control of your spending and keep up with your repayments. A low credit utilisation ratio suggests to lenders that you’re managing your credit accounts responsibly and aren’t overspending.  

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 then divided by your total credit limit, and this is multiplied by a 100 to express your ratio as a percentage. 

For example, let’s say your only line of credit is a credit card with a £1000 limit. If your balance is £400, your credit utilisation ratio would be 40%. 

What is a good credit utilisation ratio?  

The lower your credit utilisation ratio, the better. It is widely agreed that a ratio of 30% or under is good. If your credit utilisation ratio is over 50% this might hurt your credit rating, and if you go over 75% this could damage your credit score. 

What factors determine my credit utilisation rate?  

Here’s what influences your credit utilisation rate: 

  • Number of credit accounts: The more credit accounts you have open, the higher your available credit is, and this lowers your credit utilisation rate.  

  • Your spending: The higher the balance on your credit accounts the higher your credit utilisation ratio will be. Try to keep your spending below 30% on any credit products. You should also endeavour to keep up with any repayments on loans and mobile phone contracts to bring the amount you owe down. This will also help lower your credit utilisation rate. 

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

Because there isn’t a set day that lenders update your credit report information, it isn’t possible to say how often your credit utilisation rate is reported to credit agencies. However, your credit score is typically updated once a month. 

How can I lower my credit utilisation ratio?  

Don’t close credit accounts: You might want to close your credit accounts in order to have a clearer view of your finances. However, by closing your accounts you’re actually reducing the amount of available credit to you, which in turn increases your credit utilisation ratio.  If you don’t use your other credit cards much, consider making small manageable payments you’ll be able to keep up with. 

Cut down your spending: One of the key factors that affects your credit utilisation ratio is how much you’re spending. Look at what your overall credit limit is and try not to spend over 30% of it if you can. 

Pay off your balances: Keeping up with your repayments and paying off your balance will help to decrease your credit utilisation ratio. It can be tempting to only make the minimum payment on your credit card, however if possible you should try to clear your balance instead. When you clear your credit card balance in full; you avoid paying interest and clear your debt faster. 

Increase your credit limit: You can ask your lender to increase your credit limit and you’ll be more likely to be approved if you have a history of making on-time payments. A higher credit limit will lower your credit utilisation as there’s more available credit for you to use. 

So, for example if your current credit limit is £2000 and you’ve spent £400 on your credit card, the utilisation ratio would be 20% but if your credit limit is £4000 with the same balance, the new percentage would be 10%. Just remember that asking for a credit limit increase can result in a hard inquiry on your credit report which can negatively impact your score. 

Get a new credit card: Having another credit card can lower your credit utilisation because it increases the amount of available credit you have. There are many types of credit cards available with different pros and cons, so carefully read the terms and conditions before you apply for a new credit card. Applying for a credit card will leave a hard search on your credit file. 

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 will 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 want to lighten the load of a big 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. You need to always 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. 

Other useful guides 

How to check your credit score    

Credit ratings, scores and bandings explained 

How to improve your credit score 

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