High credit utilisation ratio vs the risk of maxing out credit

richcow

Hi, I have a number of credit cards which I use for different purposes (overseas spending, a 0% balance transfer, a reward card for everyday spending), as well as other sources of credit.

The credit limits on all of these are relatively high and I do not get anywhere near reaching the limits, and, with the exception of the 0% BT, I pay all cards off monthly.

Until I read about the credit utilisation ratio my instinct would have been to reduce the credit limits on these cards because I thought it would appear to potential new lenders that I already had a huge amount of credit available, with the associated risk of maxing out and defaulting etc.

My question is - how do I determine whether is it better to keep my credit utilisation ratio low or to reduce the availability of credit? Is there some magic ratio number to aim for??

I am thinking mostly about how mortgage lenders will see me when it comes to switching mortgage deals.

Many thanks.

Pixie5740

richcow wrote: »

Hi, I have a number of credit cards which I use for different purposes (overseas spending, a 0% balance transfer, a reward card for everyday spending), as well as other sources of credit.

The credit limits on all of these are relatively high and I do not get anywhere near reaching the limits, and, with the exception of the 0% BT, I pay all cards off monthly.

Until I read about the credit utilisation ratio my instinct would have been to reduce the credit limits on these cards because I thought it would appear to potential new lenders that I already had a huge amount of credit available, with the associated risk of maxing out and defaulting etc.

My question is - how do I determine whether is it better to keep my credit utilisation ratio low or to reduce the availability of credit? Is there some magic ratio number to aim for??

I am thinking mostly about how mortgage lenders will see me when it comes to switching mortgage deals.

Many thanks.

There's isn't some magic ratio because there's no one size fits all criteria for lenders. Each lender will have it's own criteria for determining whether to lend to you or not, some might favour higher amounts of available credit and lower credit utilisation whilst others might prefer less available credit. If it were me I would just leave well alone especially if you are planning on applying for a mortgage in the near future.

[Deleted User]

I'd echo the above and not touch limits around mortgage application. If they're lowered it can make a bank question whether the credit provider has spotted something dodgy with your spending (even if it was voluntary, the computer or underwriter won't know that)

From a mortgage lending point of view, all I look at is balances and conduct. The fact someone has a few quid outstanding on a £12,000 limit card doesn't concern me - they haven't racked it up yet, so why would they in future? If all cards were taken out the month prior to mortgage application that's a different story, but long-standing cards are rarely a concern

You could actually argue on the flip-side - having credit gives people in (hopefully temporary) distress options.

When a person has credit they can (generally) keep hold of it and utilise it as they see fit. Account reviews downwards are usually only if a provider is spooked by CRA conduct/account conduct

If a person hasn't got credit but suddenly needs credit (say they lost their job and are planning to whack spending on a credit card until they get new employment) the banks aren't willing to give it - responsible lending etc. It might not be the "best" idea or most money saving idea - and yes the person should have had savings etc etc - but it's certainly preferable than not being able to pay bills, heat your house etc

The automated credit scoring which happens before an application gets to me probably (almost certainly) does look at limits - but I can think of several of my current cases where applicants have a large amount of 'potential' credit debt - several £10k+ limits per applicant etc - but sailed through credit scoring (of course, the rest of their files was perfect too!).