Credit utilisation ratio explained: why it matters for your score

Two people can both pay their bills on time, yet have different credit scores. One reason is credit utilisation: how much of their available credit they use. It's simple to understand and easy to manage.

What credit utilisation means

It's the percentage of your total credit limit that you're using. If a card has a certain limit and the statement balance is a quarter of it, utilisation is about 25 percent.

Why lenders care

High utilisation can suggest that a person depends heavily on credit, which may signal financial stress. Lower utilisation suggests comfortable management.

What's considered healthy

There's no single magic number, but many experts suggest keeping utilisation well below the limit, often under about 30 percent, as a general guideline. Lower is generally viewed more positively.

How utilisation is measured

Credit reports often reflect the balance reported by the bank around the statement date. So even if a customer pays in full later, a high statement balance may appear as high utilisation for that month.

Ways to keep utilisation low

1. 1Spend only what you need.
2. 2Pay part of the balance before the statement date if spending is high that month.
3. 3Keep older cards open where sensible, as they add to total available credit.
4. 4Accept a limit increase only if you won't increase spending.
5. 5Spread large purchases thoughtfully, without opening unnecessary cards.

Multiple cards

Overall utilisation across all cards matters, as does utilisation per card. Opening many cards just to lower utilisation adds complexity and fees; it's rarely worth it.

Questions customers ask

"I pay in full every month. Why is my utilisation high?"

Because the statement balance reported may be high relative to the limit. Paying earlier in the cycle can help.

"Does zero usage help?"

A card that's never used may not build much history. Light, regular use with full payment is better.

"Will closing a card hurt?"

It can reduce total available credit and raise utilisation. Consider this before closing old cards.

How to explain it to customers

"Try to keep your card balance small compared to your limit. It's like not filling a glass to the brim. It shows lenders you're in control."

Key points to remember

• Utilisation is the share of your limit you use.
• Lower utilisation is generally better for credit scores.
• Statement balances often determine reported utilisation.
• Paying before the statement date can help in heavy months.
• Don't open extra cards just to manage utilisation.

Summary

Credit utilisation is one of the easiest parts of a credit score to control. Teaching customers this simple concept helps them build stronger credit profiles. Read credit scores explained.

A short example in words

Suppose two people each spend the same amount every month. One has a card with a low limit, so the spending uses a large share of it. The other has a higher limit, so the same spending uses a small share. Even if both pay in full, the second person's utilisation looks healthier. This shows why utilisation depends on both spending and limit.

Don't obsess over it

Utilisation matters, but it changes month to month. Paying on time consistently matters most. Customers shouldn't stress about one month of higher spending if they pay it off; the long-term pattern is what counts.