What is Your Credit Utilisation Ratio?

Your credit card spending habits shape your chances of getting mortgages and loans – often without you realising it.

Many people find their applications rejected or face higher interest rates because they’ve used too much of their available credit. This comes down to something called your credit utilisation ratio, which plays a big part in UK lending decisions.

The good news?

Once you understand how credit utilisation works, you can use it to improve your chances of getting approved for the borrowing you need.

Let’s look at what this ratio means, why it matters, and how to make it work in your favour.

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What is a Credit Utilisation Ratio?

Think of your credit utilisation ratio as a measure of how much of your available credit you’re actually using.

It’s a simple percentage that compares your credit card balances against your credit limits.

Say you have a credit card with a £5,000 limit and your current balance is £2,000.

Your utilisation ratio would be 40%
(£2,000 divided by £5,000, multiplied by 100)

If you have multiple cards, both individual and overall ratios count.

So if you have two cards, each with £5,000 limits, and you owe £2,000 on one and £1,000 on the other, your overall ratio would be 30% (£3,000 total debt divided by £10,000 total limit).

UK credit reference agencies like Experian, Equifax, and TransUnion use this ratio as part of their scoring systems. They look at both your individual card ratios and your overall credit utilisation when calculating your credit score.

Why Your Credit Utilisation Matters

The amount of credit you use sends clear signals to lenders about how you manage money.

High utilisation can suggest you’re relying heavily on credit, which might make lenders wonder about your ability to handle more borrowing. This is particularly true if you always borrow near to your limit and pay just the minimum each month.

Let’s say you’re applying for a £500,000 mortgage.

If your credit cards are nearly maxed out, lenders might worry about your ability to manage the mortgage payments alongside your existing commitments.

But if you’re using just a small portion of your available credit, it shows you can access credit without depending on it.

Many people believe keeping a constant balance on their cards helps their credit score – it doesn’t.

Others think closing unused cards improves their score, when this actually might harm it by reducing their total available credit and increasing their utilisation ratio.

Remember, credit utilisation isn’t just about the numbers – it’s about showing lenders you can manage credit responsibly.

Related: Can you get a mortgage with credit card debt?

Finding Your Utilisation Rate

Working out your credit utilisation is straightforward.

First, check your latest credit card statements or log into your online accounts to find your current balances and credit limits.

To calculate your ratio for each card, divide your balance by your credit limit and multiply by 100.

EG: £2000 / £5000 = 0.4 * 100 = 40%

For your overall ratio, add up all your balances and divide by the sum of all your credit limits.

Business credit cards might affect your personal credit utilisation too, depending on whether you’re personally liable for the debt.

Check your credit report to see which accounts are showing.

What Makes a Good Utilisation Rate?

While there’s no magic number, keeping your credit utilisation below 30% often leads to better credit scores. This means using only 30% of your available limit.

Some experts suggest staying under 20% for the best results. But context matters – what works for one person might not work for another.

UK lenders look at utilisation differently depending on the type of credit you’re applying for.

Mortgage lenders might be more concerned about high usage than credit card companies. They’ll also consider other factors like your income, job stability, and overall credit history.

The sweet spot is using enough credit to show you can manage it well, but not so much that you appear stretched.

Zero utilisation isn’t always better than low – some regular card use, paid off in full, can definitely help demonstrate responsible credit management.

Improving Your Credit Utilisation

Small changes in how you use your credit cards can make a big difference to your utilisation ratio.

Paying your balance before your statement date, rather than just by the due date, can lower your reported utilisation. Even paying twice a month can help keep your ratios lower.

If you’re planning to apply for a mortgage or loan, consider paying down your credit card balances several months beforehand.

You might also ask your card providers about credit limit increases – but only if you’re confident you won’t be tempted to spend more.

Balance transfer cards can help by spreading debt across more available credit, reducing your ratios on individual cards. But remember that applications for new credit will temporarily lower your credit score.

Related: What Lenders Want To See On Your Credit Report

Common Questions

Should you close unused credit cards? Usually not – keeping them open maintains your total available credit and helps your utilisation ratio. But if you’re paying annual fees for cards you don’t use, weigh the costs against the benefits.

What about applying for new credit? Time this carefully. New applications will briefly lower your credit score, so avoid applying for credit cards right before seeking a mortgage or important loan.

What about other types of credit? Other types of credit facility also need to be considered. These include; store cards, catalogues, overdrafts.

Balance transfers can help manage your utilisation, but remember that the new card’s limit and balance will factor into your overall ratio.

How Brokers Can Help

Mortgage and loan brokers see credit utilisation issues every day.

They understand how different lenders view credit usage and can suggest specific steps to improve your position before applying.

A broker can look at your credit usage alongside other factors that affect your borrowing options. They might spot opportunities to restructure your credit use or time your applications better.

Plus, they know which lenders are more flexible about credit utilisation in certain circumstances.

Working with a broker means you can understand the whole picture – not just your credit utilisation but how it fits with other aspects of your application.

Ready to improve your borrowing options?

Start by checking your credit situation and taking steps to optimise it. If you’re planning to apply for a mortgage or loan, speaking with a broker early on can help you prepare your credit profile and improve your chances of approval.