Understanding credit utilisation

Credit utilisation explained

Credit utilisation simply means how much of your available credit you are currently using. It is usually expressed as a percentage. For example, if your credit card has a £1,000 limit and you owe £200, your utilisation on that card is 20%. Here’s one way to work it out:

1. Note your credit limit – for each card or line of credit, find out the maximum you could borrow.
2. Check your balance – look at how much you currently owe on that account.
3. Divide balance by limit – divide the amount owed by the credit limit.
4. Multiply by 100 – multiply the result by 100 to get a percentage utilisation.

MoneyHelper notes that lenders may look at this figure when you apply for credit, with some suggesting that keeping utilisation under roughly a quarter of your total credit limit can make approval more likely. However, this number is only one part of your wider credit picture.

Why do lenders look at utilisation?

When a lender reviews an application, they want to gauge how heavily you rely on credit. Using most of your available credit could suggest that your finances are stretched, whereas using only a small proportion may show you have some headroom to deal with unexpected costs. Each lender has its own benchmarks and will also consider factors like your income, payment history and existing commitments. Some credit agencies suggest keeping utilisation under around 25 %, but there is no universal percentage that works for everyone.

Keeping utilisation in perspective

It can be tempting to focus solely on a utilisation figure, but it’s just one piece of the puzzle. Consider these points alongside the percentage:

• Payment history matters – consistently paying on time tells lenders more than a single ratio.
• Closing accounts can backfire – shutting a long‑standing credit line may reduce your available credit and push utilisation up.
• Old cards carry risks – leaving a dormant card open could be helpful for your ratio, but dangerous if it tempts you to spend.
• Look at the bigger picture – think about your overall budget and whether you can reduce your balances over time rather than chasing a specific number.

If you are unsure, free credit score tools and guidance from charities can help you see how different actions might affect your rating.

Managing your credit and budget

Lower utilisation comes from either increasing your available credit or reducing your balances. For most people the simplest route is to pay down what you owe. Some general tactics include:

• Pay more than the minimum – if you can afford it, make payments above the minimum to reduce balances faster.
• Create a budget – use our budget planner tool to list income and outgoings and spot areas where you might cut back.
• Try budgeting methods – our guide on budgeting methods explains ideas like the 50‑30‑20 split.
• Consider consolidation – our comparison of debt consolidation options sets out common approaches, but consolidation is not right for everyone and you should seek regulated advice if you’re unsure.

A credit score is more than one percentage; focus on building a healthy track record over time rather than chasing a single utilisation target.

Sources

• MoneyHelper – Why can’t I get a credit card?
• Equifax – Why is my credit score going down?
• Loqbox – What is credit utilisation?