Deep Dive

WTF is Credit Utilisation?

Emma Nunes-Vaz
January 16, 2024

When applying for any type of credit, lenders look through your credit report (both a system or manual review), and one of the things they’ll be looking at is your credit utilisation ratio…but what is it? And is it good or bad? Don’t worry - Incredible’s got you covered!😎 We’re here to answer those questions and give you some examples of the difference between a good and bad ratio.

What is Credit Utilisation?

Your credit utilisation ratio is the amount of credit you're using in relation to the amount of credit you have available. It's calculated by taking your total credit card balances and dividing it by your total credit limit. For example, if you have a credit card with a £1500 limit and you're carrying a balance of £750, your credit utilisation ratio would be 50%. 

A high ratio can be seen as a red flag by lenders as it indicates you might be struggling to manage your finances. You should try to avoid a high ratio at all costs; because the higher the ratio, the more difficult it is to pay off. A low ratio, on the other hand, is seen as a positive sign because it shows that you are good at managing your money.💸 The ideal ratio would be anything below 30%, showing you are using a small amount of credit relative to what's available to you - and that you are not maxing out your credit cards. You can find out how your credit utilisation might negatively affect your finances by reading our blog about credit scores here! 📈

How can you lower your credit utilisation ratio?

Credit utilisation is an important factor in credit scoring. It's a good idea to keep an eye on your credit utilisation ratio and take steps to lower it if it's too high. By doing so, you'll improve your chances of getting approved for credit in the future! This can be done by:

  • Paying off monthly balances, lowering the amount of credit you're using, subsequently improving your credit score ✅
  • Request a credit limit increase. If you have a history of making on-time payments and keeping your balance low, you may be able to get a limit increase from your provider🙌
  • Ensuring you aren’t carrying a balance on your credit cards from month to month. If you do, try to pay it off as quickly as possible🏃

If you're looking for more information on credit scores and debt management, be sure to check out our other blog posts - and take a look at our instagram where we post regular, informative content!💪 Similarly, our Incredible app will help you track, pay and manage your existing debt repayments; putting everything on autopilot as we do all the hard work for you. What’s more, we’ll nudge you with tips on how to boost your credit score, like lowering your utilisation ratio on one of your credit cards. To become a member of our community, register for early access here to start your journey to better financial health today!✨