Credit Card Utilization - Credit Rating Effect

dlewisjo

Hi there,

This is my first post in the forum so forgive me if it's not in the correct area.

I'm currently saving for a house deposit as a first time buyer and so am trying to cut my spending as well as reduce my debt and improve my credit rating.

Up until recently I had 2 credit cards but I've just taken out another because the interest free period on both of them is about to end - taking out a balance transfer to the new card.

My question is on utilization and the effect on my credit score. I have the majority of my debt on just one card whereas the others have near zero balances. Should I spread this debt more evenly across the 3 cards or just leave it as it is? Should I also consider cancelling one of the cards? They break down something like this:

Card 1 - Limit £8000 Balance £2500 (interest period of 2 years)
Card 2 - Limit £7000 Balance £0.00 (no interest free period)
Card 3 - Limit £5000 Balance £100 (no interest free period but a promo balance transfer rate is available)

Thanks

[Deleted User]

I'd only consider cancelling one if your income is fairly low in comparison.

dlewisjo

I'm happy to keep it for now but what about the outstanding balance. Would it be better for my rating to spread it across all cards or just leave the majority of it on one?

[Deleted User]

There's no need to go reallocating balances.

KoshB5

Each lender will have their own scorecard that drives their selection criteria based on their business model / risk profile. Their score will be based on many factors, some more important than others e.g.

debt burden - the number and type (secured / unsecured loan, short term loan, credit card, catalogue....) of accounts and debt to limit ratio (this will also include how the debt is spread across all account)

payment schedules - how accounts have been managed from a payments perspective e.g. negative markers (late, defaults, CCJ....)

Overall credit history - (which will also cover closed accounts) as a credit history ages it can have a positive impact on a score. Metrics like average age and oldest account can come into play, many accounts with a short life would start to raise affordability concerns

search history - hard credit searches which occur when you apply for credit can hurt scores especially when there are many in a short time period. However as search footprints are unique to the CRA providing the information, with most providers only using a single CRA to make their decision (all CRAs see the account once open for major account types, some small providers don't submit to all), this metric only comes into play effectively if an individual has made multiple applications to providers that use the same CRA as the current provider assessing the application

Other factors that can be considered - address history, moving frequently could be seen as lack of stability and could indicate risks around affordability. Fraud markers against an individual will also be assessed e.g. CIFAS

Also if you have a financial association that association can also be assessed on sole applications for certain types of checks

In your case having long standing underutilised accounts (open or closed) is likely to be more positively viewed than multiple accounts with substantive balances spread across them.