6 min read

How to keep your credit utilisation low

Andre Spiteri
20 September 2018

We seem to love our credit cards almost as much as we love talking about the weather (almost). In fact, according to ClearScore’s latest research, we may be leaning on them a bit too much. Almost 4 out of 10 of us regularly use more than 30% of our credit limit. And almost a third of us use more than half of it.

Unfortunately, while having a moan about the weather won’t harm your credit score (whew!), using too much credit definitely can. It can give lenders the impression you’re having financial difficulties, even if it isn’t true. And this can make them reluctant to give you more credit.

As a rule, you should keep your credit utilisation under 30%. So, if your credit limit is £1,200, you should aim to spend £360 or less. Here are some simple steps you can start taking today to help you stay within this limit.

Keep tabs on your credit card use

It sounds obvious, but the easiest way to keep your credit utilisation low is to stay in control of how much you buy on credit. It’s worth getting into the habit of monitoring your credit card use regularly, for instance every week. This way, you can rein it in (or switch to your debit card) before that Asos flash sale pushes your credit utilisation over 30%.

Monitoring your credit card use is as easy as logging on to your lender’s mobile app and checking your balance. But if you’ve got more than one credit card, there are apps for that, too.

Apps like Money Dashboard and Yolt let you see all your financial accounts, including credit cards in one place. As an added bonus, you can set spending limits, and you’ll get a notification if you’re about to reach them.

Hold on to unused credit cards

Have a credit card that’s been gathering dust in your desk drawer? While you may be tempted to cancel it and pop it into the shredder (or get creative with your scissors), it may be worth holding onto, for two reasons.

First, cancelling the card will lower your overall credit limit. As a result, your credit utilisation will go up. And that’s before you even hit the shops.

In addition, if you’ve had the card for a long time, cancelling it may lower the average age of your accounts. Lenders like to see stability. So, a lower average account age could have an impact on your score.

Instead of cancelling the card, it may be worth using it for a small, regular purchase, such as your gym membership or Spotify subscription. But make sure you set up a direct debit for the full amount each month, so you’ll never miss a payment.

Adjust the timing of your balance payments

If you check your credit report regularly (you are doing that right?) you may have noticed that the credit card balance on your report and the balance on your credit card statement don’t always match. There’s a simple explanation for this. Lenders typically report your current balance, not your statement balance, to the credit reference agencies.

For this reason, it may be worth paying off your credit card more than once a month. That way, your lender will always report a low balance, which means your credit report will show low credit utilisation.

Alternatively, you could ask your lender when they report to the credit reference agencies. You could then try paying off your balance beforehand. So, if your lender reports around the beginning of the month, you could start paying off your balance in the last week of the month.

Consider a personal loan

Credit utilisation is only affected by credit cards and other ‘revolving’ credit, such as store cards and overdrafts. Personal loans aren’t ‘revolving’ credit, so they don’t count.

With this in mind, it’s usually a good idea to take out a loan rather than use your credit card if you need to borrow a large sum, for example to buy a car. A loan may also be a good option if you have several credit card debts. Aside from lowering your credit utilisation, moving all your debts to one place can help make them more manageable.

It goes without saying that loans are still a form of credit. The lender will run a hard search, which will leave a mark on your credit report. You’ll also have to keep up with repayments, as missed payments may affect your credit score.

It’s worth noting that using a credit card could still be a better option, even though it’ll increase your credit utilisation. This is because it might be cheaper, for example because it has a low interest rate or a 0% purchase offer, which allows you to spread repayments over several months interest-free.

This article can help you decide whether you should use a credit card or a loan.

In a nutshell:

Keeping your credit utilisation under 30% is one of the best things you can do to keep your credit score healthy.

But don’t go overboard. Lenders want to see a history of good borrowing behaviour. So, while maxing out your credit card on Amazon every month is probably best avoided, burying it under your mattress isn’t going to help your credit score any, either.

Now, back to talking about the weather.

by Andre Spiteri

Andre is a former lawyer turned financial writer. Andre has written this article especially for ClearScore.

ClearScore exists to make your finances simple.
We offer a free service where you can handle everything to do with credit in one place. In your ClearScore account, you can see your credit score and the full details of your credit report. Your credit cards, mortgages, mobile phone contracts, loans, overdrafts and utilities all on the record. Our goal is to make ClearScore as simple, calm and straightforward as possible. Money is stressful enough.