What is a credit utilisation rate?

A credit utilisation rate, also known as a credit utilisation ratio, is the percentage of credit you have used on your credit account. Banks and lenders use this to determine your ability to repay debts.

Learn how to boost your business credit score and what factors determine your rating.

A low credit utilisation rate means that you’re using less of your available credit. This is likely to improve your credit score and means that you’re not overspending or using more credit than you are able to repay on time.

How to calculate your credit utilisation rate

To calculate your credit utilisation rate, you will need your credit limit and the current amount you owe. The formula for credit utilisation rate is:

The amount you owe ÷ your credit limit

For example, let’s say you have a credit card with a limit of £1000. You’ve spent £200, and have £800 credit left over. Therefore, your credit utilisation rate is: 200 ÷ 1000 = 0.2 (20%).

You can calculate the rate for a single credit card, or your overall rate. To calculate your overall credit utilisation rate, divide the total amount of money you owe by the total credit limit you have across the multiple accounts.

For instance, if you have 2 credit cards with a total of £5000 credit limit, and on one card you owe £500, the calculation would be: 500 ÷ 5000 = 0.1 (10%).

What is the ideal credit utilisation rate?

Although there is no set number, a good rate would be anything under 30%. A low rate means that you are responsible with your spending and good at managing your finances. A higher rate could indicate to lenders and creditors that you might have difficulties paying off your loan or credit card.

How does your credit utilisation rate affect your credit score?

Your credit utilisation rate can greatly improve your credit score as it demonstrates that you are good with your money. However, lowering your credit utilisation rate will not have an immediate effect on your score.

Credit score agencies don’t update their information on a daily basis - it is usually done monthly from the end of your billing cycle. So if you’ve paid off a large portion of your credit card but your score hasn’t improved, check back in a month.