What is credit utilisation?

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Simply put, your credit utilisation is the amount of your available credit that you’re using. 

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Credit utilisation is one of the most important factors when building your credit score. Having a low credit utilisation ratio (not using too much of your available credit) can give your credit score a boost. Loqbox helps to get your credit utilisation in shape.

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Why is my credit utilisation ratio important?

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Having a low credit utilisation ratio can help to grow your credit score. And having a good credit score can help you borrow money and get the best deals for repayment. When it comes to large loans and mortgages, a higher credit score can literally save you thousands in the long run, so it’s important to get your credit utilisation ratio right.

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Not only do low credit card utilisation ratios help credit scores, but high overdraft and credit card utilisation ratios can actually harm credit scores. If you’re constantly spending all the way up to your credit limits, it can appear to lenders as if you’re not financially organised and that you’re relying on borrowing too much. And that can hurt your credit score.

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So, what’s a good credit utilisation ratio?

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First let’s look at a credit utilisation calculator:
Your credit utilisation ratio (sometimes called a credit utilisation rate) is worked out as your total debt, divided by your total available credit, multiplied by 100. The final amount is your credit utilisation percentage.

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So, if you have a credit card with a £5,000 limit and your outstanding balance is £2,500, your credit card utilisation ratio is 50%. 

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Generally you want your credit utilisation ratio to be below 25%. So, using the example above, if your credit card limit is £5,000, you should try to keep your balance below £1,250. 

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That shows creditors that you’re competent at using your credit. A much higher balance could raise a red flag that you're at risk of defaulting on your credit.

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When will improving my credit card utilisation ratio change my credit score?

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If your credit card utilisation ratio is above 25%, you might decide to make a large payment onto your credit card to reduce your rate. But when you look at your credit score, you discover that it hasn’t changed. Don’t panic! 

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Your credit utilisation ratio (and therefore your credit score) may not update until your card provider reports the information to credit reference agencies (CRAs). This reporting happens monthly, at the end of your billing cycle, and then can take about 40 days to be validated and updated on your report.

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So depending on when you make the payment, you might have to wait a few weeks for it to have an impact on your credit score. 

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How can I improve my credit card utilisation ratio?

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Understanding how credit utilisation works is the first step towards improving it. It’s a good idea to keep a regular eye on your credit limits and balances. Here are some other strategies to help you manage and optimise your credit card utilisation:

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Pay your balances on time

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Making timely payments on your credit card will reduce your outstanding balances. Even if you can’t pay off the full amount, try and bring the balance down to 25% of your available credit every month. That will help to improve your credit utilisation ratio.

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Increase your credit limits

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Depending on your credit scores’ health, you can request a credit limit increase on your card or charge account. Having a higher limit can provide more available credit, therefore lowering your credit utilisation ratio if you don’t increase your balance. 

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However, it's really important to use this option responsibly and avoid overspending, which  can have the opposite effect. 

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Applying for new credit agreements can also cause a hard check to appear on your credit report which could impact your credit score. To avoid this, try to spread out applications by six months at a time.

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Distribute balances across multiple cards

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If you have more than one credit card, spreading your balances across them can help reduce individual credit utilisation rates on each card and therefore improve your overall credit utilisation ratio. It’s important to remember that trying to open lots of credit cards can negatively impact your credit score, so be careful if you choose this route.

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Click here for more information on how credit cards affect your credit score.

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Get started with Loqbox Grow

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If you’re worried about juggling credit cards, don’t worry: there is another way. Loqbox Grow is a clever tool that lowers your credit utilisation, and also helps to build your credit score. You could see your credit score grow by up to 125 points in the first six months. Find out more about how Loqbox Grow can help you.

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Improvements to your credit score are not guaranteed.

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Your credit utilisation ratio reflects on your financial responsibility and impacts your creditworthiness. By using Loqbox Grow, maintaining a low credit card utilisation ratio and practising responsible credit card management, you can boost your credit score and improve your chances of getting better financial options.