Credit Score Basics > How does credit utilisation affect your credit score?

How does credit utilisation affect your credit score?

Wollit Team2 minute read · Updated 30th June 2024

Credit utilisation, which refers to how much of your available credit you are using, can significantly impact your credit score in the UK. Here's how it works.

What is credit utilisation?

Credit utilisation is how much of your total available credit you are using. It's calculated by dividing the amount you owe on credit cards and loans by your total credit limits.

For example, if your total credit limit across all cards and loans is £10,000, and you owe £3,000, your credit utilisation is 30% (£3,000 / £10,000 = 0.3 or 30%).

How does credit utilisation affect my credit score?

Credit reference agencies like Experian, Equifax, and TransUnion look at your credit utilisation when calculating your credit score. A high utilisation rate can hurt your score, while a low rate can help it.

Under 25% utilisation: This is considered good and is unlikely to negatively affect your score.
25% to 50% utilisation: This range may start to lower your score, as it shows you're using a significant portion of your available credit.
Over 50% utilisation: A utilisation rate above 50% is generally viewed as high and can significantly lower your score. It suggests you may have trouble managing your debt.
Maxed out credit limits: Maxing out your credit cards or loans (100% utilisation) is a red flag for lenders and can severely damage your score.

Lenders and credit reference agencies prefer to see a low utilisation rate on each account as well as overall.

How can I improve my credit utilisation to have a better credit score?

To maintain a good credit utilisation rate and improve your credit score, try these tips:

Pay down credit card balances to keep your utilisation low, ideally below 25%.
Request a credit limit increase on your cards, which can lower your utilisation percentage without changing your spending.
Avoid maxing out credit cards or using more than 50% of your available credit.
Make payments more than once a month to keep balances low before your statement is generated.
Spread out your spending across multiple credit cards instead of maxing out one card.

By keeping your credit utilisation low and managing your credit responsibly, you can improve your credit score and increase your chances of being approved for loans and credit at better rates.

However, the most impactful thing you can do for your credit score is to improve your credit history, or the history of your debt repayments.

The good news is that now there are many apps that can help you build and improve your credit history. One such app is Wollit.

Wollit works by reporting a fixed-fee monthly subscription as a loan repayment to all credit reference agencies. This helps you build a history of timely debt repayments, which is the main factor that matters for your credit score – much more than your credit utilisation ratio.