What is a credit utilisation ratio and how does it affect your application?

What is a credit utilisation ratio and how does it affect your application?


What is a credit utilisation ratio?

Your credit card utilisation ratio is a significant factor that influences your credit score and approval of credit applications.

Put simply, your credit utilisation ratio is how much of your available credit you have used. For example, if you have a credit limit of £1,000 on your credit card and you have a balance of £500 your credit utilization ration would be 50%. You have spent 50% of your credit limit. Your utilisation ratio only takes into account revolving credit such as credit cards and not instalment loans such as auto loans or mortgages.

How does the credit utilisation ratio affect my credit application?

Your utilization ratio can make up around 30% of your credit score so it is important to keep this number as low as possible should you chose to apply for credit in the future. If you have a high ratio, lenders may assume you would struggle to keep up with payments which could lead to a default on your report. Generally, anything below 30% is considered good.

How do I calculate my credit utilisation ratio?

You can calculate your ratio using the formula below:

Credit utilisation ratio = (Balance to pay on credit card / Credit card limit) x 100

How can I lower my credit utilisation ratio?

If your utilisation ratio is higher than 30% there are two ways you can decrease it. You can decrease your balance by paying it off with your credit card company or you can apply for a higher credit limit. Both methods increase the gap between balance and limit and therefore reduce the ratio.

It is important to note that your credit report refreshes around the end of the month, so to get the low ratio you’re looking for you may need to make sure the steps you have taken to reduce your balance aren’t reversed by spending more on your card and increasing your balance.

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*By using Bumper, you are taking out a form of credit. You must be 18+ & a UK resident to apply. There are no fees, no interest or additional charges, however missed payments may incur a £12 administration fee and may impact your credit score. In extreme cases, recovering missed payments may include using a responsible debt collection agency, or as a last resort, taking legal action. Bumper’s instalment credit products are not regulated by the FCA.