Understanding Credit Utilisation

The Basics:

What is a Utilisation Rate?

Your utilisation rate is the amount of available credit you’re using (your balance), expressed as a percentage of your total available credit.

You can work out your utilisation rate by taking your balance, dividing it by your credit limit, and then multiplying by 100.

Eg a £100 balance on a card ÷ the £500 limit multiplied by 100 = 20%

There are 3 kinds of utilisation rate – all of which are taken into account by Credit Reference Agencies.

Let’s break each of them down with an example:

Individual: This is the utilisation rate on any one of your credit accounts.

For example, if you have a credit card with a limit of £1000, and your balance is £250, then your individual utilisation rate for this card would be 25%.

Total: This is the utilisation rate across all of your credit accounts.

For example, if you have 2 credit cards, one with a limit of £1000 and a balance of £250, and another with a limit of £2000 and a balance of £400, your total utilisation would be a 21.6% utilisation rate across all of your credit accounts.

To work this out, simply add the balances together (in this example £250 + £400 = £650), then divide this by the total credit limit (£3000), and multiply by 100.

Maximum: This is the individual utilisation rate that is highest across all of your credit accounts.

For example, if you have 3 credit cards, one with a utilisation of 20%, another with a utilisation of 34% and the other with a utilisation of 11%, then your maximum utilisation would be 34%.

The Basics:

Why is my utilisation rate so important?

A higher balance can both accrue more interest, and make it more challenging to repay in one go – increasing the time over which you are charged.

Reducing your balance (and therefore your utilisation rate) could save you money on interest now, and as your credit score increases, has the potential to save you even more money in the future, as credit at lower interest rates is often reserved for those with better credit scores.

Should you find that you are often utilising over 25% of your available credit you may want to seek free debt advice with regards to how you can change this.

The Basics:

What is considered a good utilisation rate?

The more of your available credit you spend, the higher your utilisation rate. The higher your utilisation rate, the more reliant on credit you may appear to Credit Reference Agencies – this often leads to them seeing you as higher risk, thus reducing your credit score.

A credit utilisation under 25% on your individual, total, and maximum utilisation rates would put you in a strong position.

Should you find that you are often utilising over 25% of your available credit you may want to seek free debt advice with regards to how you can change this.

Steps I can take

Make a note of these points below, and each month when you’re paid, work out what you need to pay, and when.

The most important point of all is to remember that keeping your utilisation rate on each of your credit lines below 25% is optimal.

Although these 3 steps seem really simple, doing them consistently each month will put you in a strong position to keep your utilisation in check:

Step 1:

Work out your current utilisation rate

Action: The first step is to know your balance and utilisation rate for each of your credit accounts.

Step 2:

Make a change to your spending 

Action: Consider if 100% of your purchase needs to be paid for using credit. Can it be funded from a debit card or cash, for example? Think about whether this would help you achieve a lower balance on your credit accounts.

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