What is a credit utilisation ratio?
Quick answer: Your credit utilisation ratio is the percentage of your available credit that you’re using. Lenders may look at your credit utilisation when deciding whether to approve you. Keeping your credit utilisation low, especially below 25%, can help protect your credit score.
Understanding how credit utilisation works can help you manage your credit cards and overdrafts and protect your credit score. Read our guide to learn what credit utilisation means, how to find your credit utilisation ratio, why it affects your score, and find some ways to improve it too.
What is credit utilisation?
Credit utilisation is how much credit you’re using compared to the amount of credit that’s available to you. This is often shown as a percentage, called your credit utilisation ratio, or credit utilisation rate. For example, if you have £1,000 of available credit and you’re using £500 of it, your credit utilisation is 50%.
It’s useful to learn how to calculate your credit utilisation ratio. You can do this in a few straightforward steps:
- Find your total available credit — Add up the credit limits on all your revolving credit, like credit cards and overdrafts. Use the information on your credit report to calculate the credit utilisation ratio that lenders may see.
- Add together your balances — Do this for the same accounts as you used to calculate your total available credit. Your credit report shows your balances all in one place. Just be aware, these balances are the ones lenders see, but they may not be your most recent balances as your report can take around 4 to 8 weeks to update.
- Divide your total balance by your total available credit — For example, if you have £2,000 of available credit and you’ve used £1,500, the calculation is 1,500 ÷ 2,000 = 0.75.
- Multiply by 100 to get the percentage — Using our example above, you’d multiply 0.75 by 100 to get 75. This would mean your credit utilisation ratio is 75%.
If you want to check your credit utilisation rate for an individual account, like a certain credit card, divide the account’s balance by its credit limit, then multiply by 100.
Want to see your borrowings all in one place? Use the Experian app to get your free Experian Credit Report. Viewing your report won’t affect your credit score.
What makes up my available credit?
Your credit limits on your revolving credit accounts make up your total available credit. Revolving credit is where you can borrow up to a certain limit and reuse the credit once you’ve paid it back. Examples are overdrafts and credit cards, including credit cards where you’re an authorised user. Another example is a line of credit, although it’s not common in the UK.
Loans and mortgages don’t count towards your credit utilisation. These are types of instalment credit, where you make fixed monthly payments over a set term.
How to improve my credit utilisation ratio
Lowering your credit utilisation ratio improves it. This is because lenders often see lower credit utilisation as a sign you can manage credit well. There are two main ways to improve your credit utilisation ratio:
- Pay down your revolving credit — Lowering the amount of credit you’re using means your credit utilisation ratio goes down too. For example, if you’re using £500 out of £1,000, your credit utilisation is 50%. If you pay some off so you’re only borrowing £250, your ratio becomes 25%.
- Increase your credit limits — If your lender agrees to raise your credit limit, your overall available credit goes up. This is a way to improve your credit utilisation ratio without making payments. In the example above, we saw that using £500 out of £1,000 means your credit utilisation is 50%. If you raise your limit from £1,000 to £2,000, your ratio is now 25%.
It’s up to your lender whether they approve you for a higher limit. They might look at your account or credit history to help them understand the risk of lending more. Avoid higher credit limits if you’re worried that you might spend more than you can afford.
Keeping your credit utilisation low can be good for your credit score. But that shouldn’t stop you from using credit when you really need it, like for emergency costs, or if it improves your financial situation in the long run, like a debt consolidation loan, for instance, which can work well in some situations.
Credit utilisation and credit scores
Credit utilisation can impact your credit score, as lenders may see a higher credit utilisation ratio as a sign of risk.
Your credit score reflects how lenders may view the information on your credit report. A higher score means you’re more likely to be approved and get better deals.
If lenders see you’re using a large percentage of your available credit — meaning a high credit utilisation ratio — they could think you’re having financial difficulties or managing credit poorly. Your score may go down to reflect this. It could go up again if you lower your credit utilisation or do something else to improve your score.
Check your free score to get an idea how lenders view you. Viewing your score won’t affect it.
What credit utilisation ratio is best for my credit score?
As a rule of thumb, try to keep your credit utilisation below 25% to help protect your credit score. If you need to use more, try to pay it back as soon as you can. This can help lower the impact on your score, as lenders may see it as a sign you’re in control of your finances.
Credit utilisation is just one of many things that affect your credit score. It’s not always a bad idea to use credit. For example, spending on your credit card and paying the full balance each month can help build your credit history.
Credit utilisation can affect your credit score in different ways depending on who’s scoring you. There are three credit reference agencies in the UK, which is why your score is different on different sites.
Want to see how credit utilisation affects your Experian Credit Score? Try CreditExpert free for 30 days* to see your score impacts, a two-year score forecast and a personalised plan to improve your score.
What does it mean if my credit utilisation has changed?
You can see your credit utilisation for things like credit cards and overdrafts on your Experian Credit Report. You may see something like “Your total credit card use is under 25%”. If your credit card utilisation changes, it means either your balance or limit has gone up or down.
If your credit utilisation falls, your credit score may go up. If it rises — especially if the credit utilisation rate is above 25% — your score may go down.
Check your credit report for free on the Experian app.
How much of my credit limit should I use?
How much of your credit limit you should use depends on your circumstances. If you want to protect your credit score, try to use no more than 25% of your credit limit. If you need to use more credit, borrow only as much as you can afford to repay. You can lower the impact on your score by paying it back.
As well as looking at how close you are to your limit on individual accounts, lenders may look at your overall credit utilisation and monthly payments. If you’re close to your credit card limit, they may be less worried if they see you’re paying off the balance, and your overall credit utilisation is low.
Get an idea how lenders see you with your free credit score.
How to check my credit limit?
You can usually check your credit limit on your account statements or when you log into your lender’s website or app. See which lenders you have credit with by viewing your Experian Credit Report. Your monthly report is free on the Experian app.
How much credit should I use on my credit card?
Try not to use your whole credit card limit. If you’re trying to improve or protect your credit score, it may help to use less than 25% of your credit. To bring your credit card utilisation below 25%, you may need to lower your spending, pay down your card or increase the limit. Avoid raising the limit if you think you might overspend.
In some circumstances, using more credit on your credit card may be the right choice for you, even if this lowers your score until you pay down the balance. For example, some people use a credit card to bridge a money gap if they have a costly month. Some use a rewards card to get perks for spending or a 0% card to spread a large expense over time.
You may want to pay down credit card debt if you have a big application coming up, like a mortgage application.
How much should I spend on my credit card?
How much you should spend on your credit card is personal to you. Stay within your credit limit and only spend as much as you’re confident you can pay back. Pay back your card as soon as you can. Depending on your lender, you likely have between 25 to 55 days to pay off purchases before you’re charged interest on them. Carrying the balance can lower your credit score and is often costly as credit cards tend to have high interest rates.
How to increase my credit card limit?
It’s often straightforward to ask to increase your credit limit. You can usually apply on your lender’s app, online account or over the phone. Some lenders let you ask for a certain amount, although it’s not guaranteed you’ll get it.
Your lender will look at how you’ve managed your account and run a hard or soft credit check. This helps them decide whether to increase your credit card limit. If they run a hard check, your score may dip for a little while.
Can lenders increase my credit card limit automatically?
Yes, depending on the circumstances, lenders may automatically increase your credit limit or offer you a higher limit. They must warn you if they’re going to raise your limit and you’ll have the chance to say no. Lenders can’t increase your limit if you’ve already said you’re not interested or if you’re showing signs of being in financial difficulty.
Frequently asked questions
How high should my credit limit be?
How high your credit limit should be depends on things like the amount you need to borrow, how well you manage credit and what lenders offer you.
You might want a limit that’s higher than the amount you want to borrow, as this can help keep your credit utilisation ratio down. Keeping your ratio below 25%, or as close as you can get to it, may help protect your score.
If you think you might overspend, it could be a good idea to keep your credit limit low. Only borrow as much as you’re confident you can pay back.
If you have a high credit score, lenders are more likely to approve you for higher credit limits.
How much of my credit card balance should I use?
Your credit card balance is the amount you’re already using on your card. The amount you’re allowed to use overall is called your credit limit. How much you should use of your credit limit depends on your circumstances.
If you want to protect your credit score, it may help to use less than 25% of your credit limit. If you need to use more, paying it off as soon as you can may lower the impact on your score. Only use as much credit as you’re confident you can pay back.
Is it bad to use your whole credit limit?
Using your whole credit limit means you’ll have a 100% credit utilisation ratio, which can make lenders think you’re more of a risk. This could lower your chances of getting approved, especially for the best rates and largest amounts. If you really have to use your whole credit limit, try to pay it down as quickly as you can.
Is it bad to use 50% of your credit limit?
It’s not necessarily bad to use 50% of your credit limit, but it may impact your credit score. If you want to protect your score, try to keep your credit utilisation below 25%. If you need to use 50% of your credit limit, make sure you can afford to repay it. You should see your score improve as you pay down your balance.
How much should my credit utilisation be?
There’s no fixed rule, but keeping your credit utilisation ratio below 25% can help protect your credit score. If you need to use more of your limit, try to pay it back as soon as possible to help your score recover. Remember, there are other things that affect your score — credit utilisation is just one factor lenders may look at.
For CreditExpert a monthly fee of £14.99 applies after your free trial. You may cancel during your 30-day free trial without charge. New customers only. Free trial period starts on registration - further ID verification may be required to access full service which may take up to 5 days.