What is a credit utilisation ratio and why does it matter for my credit score?

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Credit utilisation is one of the most significant factors in most credit scoring models, and understanding how it is calculated (and how to manage it) can meaningfully improve your credit score over a relatively short period. **How it's calculated** Credit utilisation = (Total outstanding balance ÷ Total available credit limit) × 100. This can be calculated per individual card/account, or as an overall figure across all your revolving credit accounts combined -- both the per-card and overall figures are considered by lenders and credit reference agencies. **Why lenders care about this ratio** A high utilisation ratio suggests you may be relying heavily on available credit, which lenders interpret as a potential sign of financial strain, even if you are making all your minimum payments on time -- a lower ratio suggests you have credit available but are not dependent on using most or all of it, generally viewed as a positive sign of financial management. **Common guideline thresholds** While exact scoring models vary between credit reference agencies and lenders, a commonly cited guideline is to keep utilisation below 30% of your available limit, with utilisation below around 10% often viewed even more favourably -- utilisation approaching or exceeding 90-100% (maxed-out cards) is generally viewed quite negatively. **Worked example** Someone has a credit card with a £5,000 limit and a £2,000 outstanding balance. Their utilisation on that card is (£2,000 ÷ £5,000) × 100 = 40%, above the commonly recommended 30% threshold -- paying the balance down to £1,000 would bring utilisation to 20%, likely improving their credit score, all else being equal. **How the timing of the snapshot matters** Credit reference agencies typically see your balance at a specific snapshot date each month (often your statement date), not your balance at every moment -- paying down your balance before this snapshot date (rather than simply paying the statement balance by the due date, which is often after the reporting snapshot) can help ensure a lower utilisation figure is reported, even if you always pay your balance in full and never actually carry interest-bearing debt. **Increasing your credit limit can help (used carefully)** Requesting a credit limit increase (without increasing your actual spending) reduces your utilisation ratio mathematically, since the same balance now represents a smaller percentage of a larger limit -- this can be a legitimate strategy to improve utilisation, provided you do not simply increase your spending to match the higher limit, which would defeat the purpose entirely. **Closing old cards can sometimes hurt your ratio** Closing an old credit card you no longer use might seem like good housekeeping, but it reduces your total available credit limit, which can actually increase your overall utilisation ratio (if you still carry balances on other cards) and shorten your average credit history length -- consider keeping old, fee-free cards open with occasional small use rather than closing them, purely for credit score purposes. **Practical tip** Aim to keep your credit utilisation below 30% on both an individual card and overall basis, and if possible, make a payment before your statement closing date (not just before the payment due date) to ensure a lower balance is reported to credit reference agencies, even if you always clear your balance in full each month.

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