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What is Credit Utilisation and how will it affect my Application

What is Credit Utilisation and how will it affect my Application?

When Financing a Car, why does ‘Credit Utilisation’ matter and what is it?

Have you recently heard the phrase ‘credit utilisation’ and wondered what it actually means? 

Whether you’re in the market for a car loan or not, it is worth understanding what it is, how it works and how it will impact on your credit score and outcome of credit applications, including car loans.

We Finance Any Car have put together this short guide to help you calculate your own credit utilisation rate.

What is credit utilisation?

Your credit utilisation or credit utilisation ratio, describes what percentage of your credit card credit limit (the maximum amount you can borrow) you are using. It is one of the factors that affects your individual credit score – and your score helps determine whether you will be accepted for credit-based products, such as a car loan and whether you’ll be offered the most competitive terms or not.

If your credit utilisation is low, We Finance Any Car’s panel of lenders can see that you are only using a small amount of the credit available to you and may be more willing to lend to you as a result.

If your credit utilisation is high, on the other hand, lenders may believe that you are already heavily relying on credit and thus may be reluctant to let you borrow more to finance a nearly new or used car.

Your credit limit is often shown on your credit card statement.

How do I work out my credit utilisation rate?

You’ll need to have your latest credit card statement to hand to help you calculate this.  To calculate your credit utilisation, simply divide the amount you owe on your card by your credit limit and multiply the total by 100.

For example, if your credit card had a credit limit of £2,500 and your balance was £1,000, your credit utilisation would be 40% (£1,000 divided by £2,500 = 0.4 x 100 = 40).

Credit utilisation doesn’t just apply to single credit cards or accounts, however. You can also calculate how much of your total available credit limit you are using.

For example, if you had the above credit card with a limit of £2,500 and a balance of £1,000, but also a second credit card with a limit of £3,000 and a balance of £2,000, your overall credit utilisation would be 55% (total debt £3,000 divided by total credit limit £5,500 x 100 rounds out to 55%).

How does credit utilisation affect my credit score?

If your credit utilisation is high, this can have a negative impact on your actual credit score. The reason for this is that, if you are using a lot of the credit available to you, some lenders may believe you’re struggling financially and relying on credit to cover your monthly out-goings.

Because of this, you may be viewed as high risk from a creditworthiness perspective and lenders may be less willing to let you borrow.  Also, if you have access to funds you’re not actually using, this could suggest you are solvent, in control of your finances and do not have to rely on borrowing.  Bear in mind though – while your credit utilisation rate is important, lenders won’t use this on its own to decide whether or not to lend to you. Other factors, such as how well you’ve borrowed in the past, will also play a part in their decision making and outcome of your application.

What is a good credit utilisation rate?

We Finance Any Car recommend you aim to keep your credit utilisation ratio under 30%.  Anything above 50% may be flagged on your credit report, and above 60% certainly will raise alarm-bells.

How can I lower my Credit utilisation rate?

There are a number of steps you can take to lower your credit utilisation rate, such as:

Clearing Debt

Perhaps the easiest way to lower your credit utilisation rate is to pay off some of your existing debt if you are able to. Once it’s paid off, you’ll need to remain disciplined and resist the temptation to start spending using credit again.

Clearing your debt more cost-effectively

You could also transfer some of your existing credit card debt to a 0% balance transfer credit card.  These can be found on various sites including and

 This will enable you to avoid paying interest for several months and may help you pay off your debt more quickly. Be aware there will be a transfer fee to pay and you will ideally have cleared your debt before the 0% period ends and interest kicks in.

Not cancelling unused credit cards

If you have paid off your credit card balance in full and you don’t plan to use the card again, rather than closing your account, leaving it open can actually help lower your credit utilisation ratio.

However, it’s important to make sure you keep an eye on monthly statements for fraud and try not to spend on the card.

Asking for a higher credit limit

Alternatively, asking your provider to increase your credit limit will also help to lower your credit utilisation rate. Just make sure you don’t use this higher limit to go on a spending spree.  That would defeat the object. Also, note that every time you ask for a credit limit increase this will be recorded on your credit report – so avoid asking too often. Certainly, keep your requests to one or two per year at most.

No matter what your credit utilisation or credit score, We Finance Any Car are here to help.  It takes less than 2 minutes to complete an application…and it won’t affect your credit score.