What Is a Good Credit Utilisation Ratio?

Of everything in a credit file, utilisation is the factor you can change fastest. It has no memory. Lower it this month and the score responds next month, which makes it worth understanding precisely.

What it measures

Take every credit card and overdraft you hold, add up the limits, and add up the balances. Balances divided by limits is your overall utilisation. Lenders also look at each card on its own, so a single card at its limit hurts even if the others are empty.

Why it matters to a lender

Someone using 90 percent of their available credit looks stretched, whatever the reason. Someone using 5 percent looks like they borrow when convenient and could stop at any time. The ratio is a crude proxy for financial pressure, and crude proxies are what scoring models are made of.

The thresholds

Under 30 percent is the figure most often quoted and it is a reasonable ceiling. Under 10 percent is where scores tend to peak. Above 50 percent starts to cost meaningful points, and a card at its limit costs more again.

These are not fixed cut-offs. Scoring is continuous, and different agencies weigh it differently. But the shape is consistent: lower is better, right down to a small non-zero amount.

The statement date trick

Most people assume that paying in full each month means their utilisation is zero. It is not. Card issuers report the balance on your statement date, and you usually pay after that.

If you spend 1,200 on a card with a 2,000 limit and pay it off on the due date, the agencies see 60 percent utilisation every month. Pay 1,000 of it a couple of days before the statement is generated, and they see 10 percent. Same spending, same cost, very different score.

Ways to lower it that do not involve spending less

• Ask for a limit increase on a card you have held for a while and used responsibly. A higher limit with the same balance is lower utilisation. Do not then spend up to the new limit.
• Spread spending across cards rather than maxing one, since per-card utilisation counts too.
• Keep old cards open if they have no annual fee. Closing them shrinks your total limit.
• Pay before the statement date, as above. This is free and immediate.

When utilisation is the wrong problem

If your balances are high because you are relying on cards for essentials, the ratio is a symptom. The score will follow once the debt comes down, and the debt comes down with a repayment plan, not a reporting trick. Free advice from a debt charity is worth more at that point than any scoring optimisation.