Credit utilisation

georgie_p

One of the elements on my credit report is credit utilisation (Either you're using quite a lot of the credit available to you, or you've no credit accounts at all. If it's the former, this may signal to lenders that you're over-committed – if you can, pay down some of the debt you already have before trying to take out any more).

I understand what it means, but how do I know where I stand? It seems quite hard to get the balance right.

I currently have 2 credit card accounts:

1. I pay off £50 per month, my current balance is £436 and my credit limit is £1,000 (£564 available to spend)
2. I pay off min per month, my current balance is £464 and my credit limit is £500 (£35.94 available to spend)

I do understand that I need to pay them both off, which is why I'm working to do that, amongst going on maternity leave, etc. However, what I'd like to know is, when I do pay them off, I tend to try and reduce my available balance - so with the first one, it was £1500 and now I've reduced it to £1000 - should I keep reducing it or aim to pay it all off and have the credit limits where they are?

Willing2Learn

I would pay off the cards and keep the credit limits the same.

If you are able to manage your monthly budget successfully, I would keep the cards and use them to pay for normal everyday budgeted goods, ie shopping, petrol etc and then pay off the full balance due every month.

If you are not good at budgeting then I would suggest closing down the accounts, once they are clear, if the temptation to spend on credit is too high.

PRAISETHESUN

Lenders tend to look at both the individual utilisation per card, as well as your total utilisation. In your situation you have a 43% utilisation on card A, a 93% utilisation on card B and a total utilisation of 60% for both cards.

The standard advice is to pay off the highest interest rate debt first. If they are the same rate, I'd probably aim for paying off card B first to reduce the utilisation. Overall once the balances are paid off, its up to you if you want to close the cards or not - if you think you will run up a large debt again then I'd close them, but otherwise I'd keep them open.

Craig1981

Do not reduce your limits - keep them as is, accept the increases when they arise (if they do).


once paid off, leave them alone or if using, pay off in full each month to avoid the charges. however as the above post says, if you think you may spend if it is there to spend, I would then close off the accounts