What does your credit utilisation rate mean?

What is the meaning of ‘credit card utilisation’ and why is it important? Read on to find out how it can affect your credit score, as well as how to calculate your credit utilisation rate.

Written by

The Editorial Team

Experts in personal finance, insurance and utilities

Last Updated

3 MARCH 2023

4 min read

What is credit utilisation?

Credit utilisation – or how much of your credit card limit you’ve used – is an important factor that impacts your credit score with credit bureaus such as Experian, TransUnion and Equifax.

Your credit utilisation rate is calculated based on your ‘revolving credit’, this is a term used to describe credit lines with no set end date. For example, a credit card is an ongoing open line of credit, whereas a loan or mortgage has a set term.

A low credit utilisation rate shows lenders that you’re only using a small amount of the credit that’s available to you. Keeping your rate low may be particularly important if you’re applying for a mortgage, a loan or personal finance for a new car, for example, as it proves you’re a reliable borrower. Doing so could reward you with a lower interest rate when borrowing in future.

How do I find out my credit utilisation rate?

To work out your credit utilisation rate, take a look at your credit card statements and see how much of your available balance you generally use. Divide your current credit card debt by your available credit limit.

If your credit card limit is £1,500 and you use around £750 a month, your credit utilisation rate is 50%. If you have a credit card limit of £2,000 and you use £1,500, your credit utilisation rate is 75%.

Bear in mind that if you have more than one credit card, the utilisation rate is taken from the total amount of credit available to you, across all the cards.

Credit card issuers and lenders don’t generally reveal their exact criteria, but most lenders advise keeping below a 30% credit utilisation rate. It’s not an exact science as your likelihood of being accepted for a loan or credit card is based on more information than just your credit utilisation rate.

What is a credit utilisation ratio?

Credit utilisation ratio is the term used to describe how much of the available credit you’re using. So, for example, if you have a new credit card with a credit limit of £1,000 and you spend £500 with it, your credit utilisation ratio will be 50%. The higher your credit utilisation ratio, the higher the chance of it being flagged on your credit report.

What is a good credit utilisation ratio?

Obviously, it’s best to keep your credit utilisation ratio as low as possible. To keep it at a ‘good’ level though, you should be trying to keep it under 30%. If you’re going over 50%, this would be considered a high credit utilisation ratio, and would likely be marked on your credit file.

So, if you’ve just taken out a new credit card, try to keep the amount of credit you’re using as low as you realistically can and avoid using the total available credit card balance.

How can I improve my credit utilisation rate?

If you’re aiming to get under that 30% credit utilisation ratio, there are several things you can do to improve your credit utilisation rate.

Pay off outstanding balances – an obvious one but reducing your credit debt will improve your credit utilisation ratio, as it will free up the amount of credit available to you.
Apply for a credit limit increase – if you’re eligible to apply for a higher credit limit, this will lower your credit utilisation ratio without having to pay off any additional debt.
Open a new line of credit – if you’re unable to increase your existing line of credit, opening a new one is another way you can lower your credit utilisation ratio. However, your credit utilisation rate will still be reviewed on a per card basis, so this may not solve the problem completely.

You should think carefully before taking on an increased total credit limit or opening new lines of credit. While it may improve your credit utilisation ratio, the risk of getting into further total debt is a real one, so it’s always best to simply pay off any outstanding debts, if possible. Keep your future credit spending low and pay off the total balance in full each month.

Your credit utilisation rate will usually be updated at the end of each monthly billing cycle.

Should I ask for a low credit card limit to keep my credit utilisation rate low?

It depends on what you use your credit card for, whether you pay it off straight away and what your salary is.

Many people request a credit card limit somewhere in the middle of what they think they might need and what they think they would be approved for. However, if you ask for a limit that’s too low, you may need to ask to increase it in the future. Unfortunately, this can impact your credit rating, especially if you make the request within six months. Every time you request a higher credit card limit, this information goes on your credit history.

If your credit card provider increases your limit, this doesn’t have the same impact on your credit rating. However, if you’re concerned your limit is getting too high, you can ask to stay on your current limit.

Should I close some credit card accounts to reduce my credit utilisation rate?

Cancelling unused credit cards may actually increase your credit utilisation rate as you’ll have less spare credit available to you. However, there are other reasons for cancelling unused cards. If you’re going to cancel a card, make sure it’s not one offering a better rate of interest than the ones you’re keeping.

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

Yes, credit utilisation is the same as debt-to-credit ratio.

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

Not quite. Debt-to-income ratio is an additional way of calculating credit risk that takes into account your income. It’s calculated using your monthly debt payments (including your mortgage, credit card balance and car loan), your monthly gross income and any benefits you receive.

So, if you pay £1,400 on your mortgage, £300 on your credit cards and £200 on a personal loan, your debts are £1,900. If your salary is £3,800 a month, your debt-to-income ratio is 50%.

Lenders use this information to decide if you’re comfortably managing your current debts and could increase the amount of credit available to you, for example, to take on a new loan or a mortgage.

In the scenario above, it may be helpful to pay off the £300 credit card debt as quickly as is conveniently possible to reduce your credit utilisation rate.