Credit Utilization Ratio; >30%? As low as 10%?

CharlieC2210

What percentage of your credit card limit should you use to optimise your chances of credit in the future. Compare The Market et al suggest keeping your useage below 30%. But Experian suggest keeping it as low as 10%. I don't have much need for my cards at the moment so I tend to use my debit card. But I've been told it might be better for my credit history if I used my credit cards then cleared the balances on time each month. If that advice is correct, should I use as little as 10% of my total limit? Or should I use nearer 30% (providing, either way, that I clear them on time, every time)?

MorningcoffeeIV

If you're clearing in full, it doesn't matter.

Use it for everything, just don't exceed your limit.

CliveOfIndia

As above, utilisation percentage is irrelevant if you're paying in full every month - despite what the CRAs would like you to believe.

CharlieC2210 said:

I've been told it might be better for my credit history if I used my credit cards then cleared the balances on time each month.

Yes, this is spot on.  Doing this (as long as you absolutely do repay in full every month without fail) is probably one of the simplest ways of building up a nice solid credit history.  Using a debit card won't help as, by definition, it's not a line of credit.

CharlieC2210

Thanks, guys. Why do the CRAs put that 'information' out there if it's not correct. I seem to remember an article on this site listing utilisation as as good advice too.

CliveOfIndia

CharlieC2210 said:

Thanks, guys. Why do the CRAs put that 'information' out there if it's not correct. I seem to remember an article on this site listing utilisation as as good advice too.

Most of what the CRAs tell you can be safely ignored.  After all, they're not the ones lending you money, so what they think of your "credit-worthiness" is irrelevant.  Their bread-and-butter income comes from selling your data to lenders, but if they can make a few bob on the side by selling you a service you can't blame them for trying.

The key thing about utilisation is that it does matter if you're carrying a balance from month to month.  If you've got a limit of, say, £5000 on your card and you regularly carry a balance of £4500, then the obvious inference is that you're relying on credit and struggling to repay what you owe.

But if you always pay in full (which you absolutely should be aiming to do) then it doesn't matter how much of the available credit you're using.  There's even an argument to say that your card provider likes it when you use the card a lot, as they make money on every transaction from the fees they charge the retailer.

Gold_bullion

I've played around with this extensively over the years and I reckon it DOES matter even if you pay off your cards in full - it's just that most people who do so will happen to stay below 25% utilisation of their TOTAL credit limit anyway, so it isn't a factor for them.

The first thing to realise is that the day-to-day "balance" on a credit card is not what is reported to the CRAs. They only get told the STATEMENT balance and they are blind to what has been put onto or paid off a card between statement dates.

Also, even if you are deliberately maintaining a balance on a card at 0% APR and making the minimum payment having paid a fee or taken out a new card with no BT fee, your credit score will improve if you keep the balance below about 75% of the INDIVIDUAL card's limit. Above this it will damage your score, even though the CRA should flag it as a promotional rate.

You might do this in the current environment as it is perfectly possible to make a 3%+ arbitrage over what has been paid in fees for BTs (easily sub 2% annualised at the moment) by keeping the money in a bond or an instant access account (ISA even) at over 5%.

However, the OVERALL 25% CC utilisation rate is still important and it will damage your score with all 3 UK CRAs if you exceed this (remember based on STATEMENT balances). Experian also seem to have a monetary limit of around £30-35k on credit cards, even if it's all at 0%, beyond which it will damage your score. It's quite easy to achieve an excellent score with Equifax and Transunion with this level of CC debt (and indeed 1000/1000 with ClearScore who use Equifax) but Experian seems to peak out at about 920/999 ("Good").

Of course if you're meticulous and you have a heavy spending month you can simply make an extra payment to the CC so the extra spending doesn't get reflected on the statement, and hence you can maintain the required utilisation figure if you need to maintain good CRA scores, perhaps in the run up to a re-mortgage or whatever.

You can also, with their permission of course, utilise your partner's CRA "headroom" to keep you both below 25% overall utilisation. Many couples simply use one or more cards of one of the partners with additional cardholders added to the accounts for the other partner, but then the main cardholder's credit score is bearing the full brunt of the spending. By balancing the load across each partner on cards in their own respective names, the "over-utilised" partner can improve their score with no detriment to the "under-utilised" partner, thus giving a better overall CRA presentation to lenders potentially before, say, a joint mortgage application.   

400ixl

CharlieC2210 said:

Thanks, guys. Why do the CRAs put that 'information' out there if it's not correct. I seem to remember an article on this site listing utilisation as as good advice too.

As the consumer, their business model is to sell you through taking their commission on the way. No more complex than that really

CliveOfIndia

Gold_bullion said:

The first thing to realise is that the day-to-day "balance" on a credit card is not what is reported to the CRAs. They only get told the STATEMENT balance and they are blind to what has been put onto or paid off a card between statement dates.

Also, even if you are deliberately maintaining a balance on a card at 0% APR and making the minimum payment having paid a fee or taken out a new card with no BT fee, your credit score will improve if you keep the balance below about 75% of the INDIVIDUAL card's limit. Above this it will damage your score, even though the CRA should flag it as a promotional rate.

You might do this in the current environment as it is perfectly possible to make a 3%+ arbitrage over what has been paid in fees for BTs (easily sub 2% annualised at the moment) by keeping the money in a bond or an instant access account (ISA even) at over 5%.

However, the OVERALL 25% CC utilisation rate is still important and it will damage your score with all 3 UK CRAs if you exceed this (remember based on STATEMENT balances). Experian also seem to have a monetary limit of around £30-35k on credit cards, even if it's all at 0%, beyond which it will damage your score. It's quite easy to achieve an excellent score with Equifax and Transunion with this level of CC debt (and indeed 1000/1000 with ClearScore who use Equifax) but Experian seems to peak out at about 920/999 ("Good").

Of course if you're meticulous and you have a heavy spending month you can simply make an extra payment to the CC so the extra spending doesn't get reflected on the statement, and hence you can maintain the required utilisation figure if you need to maintain good CRA scores, perhaps in the run up to a re-mortgage or whatever.

You can also, with their permission of course, utilise your partner's CRA "headroom" to keep you both below 25% overall utilisation. Many couples simply use one or more cards of one of the partners with additional cardholders added to the accounts for the other partner, but then the main cardholder's credit score is bearing the full brunt of the spending. By balancing the load across each partner on cards in their own respective names, the "over-utilised" partner can improve their score with no detriment to the "under-utilised" partner, thus giving a better overall CRA presentation to lenders potentially before, say, a joint mortgage application.   

I'm not sure why you've resurrected a thread that's almost 2 years old in order to post incorrect advice.  As has been stated before, your utilisation ratio is irrelevant if you're paying off in full every month.  Yes it will affect your score, and yes the CRAs do like to harp on about it.  But since a lender can't even see your score and the CRAs aren't the ones lending you money, who cares?

Nasqueron

Gold_bullion said:

I've played around with this extensively over the years and I reckon it DOES matter even if you pay off your cards in full - it's just that most people who do so will happen to stay below 25% utilisation of their TOTAL credit limit anyway, so it isn't a factor for them.

The first thing to realise is that the day-to-day "balance" on a credit card is not what is reported to the CRAs. They only get told the STATEMENT balance and they are blind to what has been put onto or paid off a card between statement dates.

Also, even if you are deliberately maintaining a balance on a card at 0% APR and making the minimum payment having paid a fee or taken out a new card with no BT fee, your credit score will improve if you keep the balance below about 75% of the INDIVIDUAL card's limit. Above this it will damage your score, even though the CRA should flag it as a promotional rate.

You might do this in the current environment as it is perfectly possible to make a 3%+ arbitrage over what has been paid in fees for BTs (easily sub 2% annualised at the moment) by keeping the money in a bond or an instant access account (ISA even) at over 5%.

However, the OVERALL 25% CC utilisation rate is still important and it will damage your score with all 3 UK CRAs if you exceed this (remember based on STATEMENT balances). Experian also seem to have a monetary limit of around £30-35k on credit cards, even if it's all at 0%, beyond which it will damage your score. It's quite easy to achieve an excellent score with Equifax and Transunion with this level of CC debt (and indeed 1000/1000 with ClearScore who use Equifax) but Experian seems to peak out at about 920/999 ("Good").

Of course if you're meticulous and you have a heavy spending month you can simply make an extra payment to the CC so the extra spending doesn't get reflected on the statement, and hence you can maintain the required utilisation figure if you need to maintain good CRA scores, perhaps in the run up to a re-mortgage or whatever.

You can also, with their permission of course, utilise your partner's CRA "headroom" to keep you both below 25% overall utilisation. Many couples simply use one or more cards of one of the partners with additional cardholders added to the accounts for the other partner, but then the main cardholder's credit score is bearing the full brunt of the spending. By balancing the load across each partner on cards in their own respective names, the "over-utilised" partner can improve their score with no detriment to the "under-utilised" partner, thus giving a better overall CRA presentation to lenders potentially before, say, a joint mortgage application.   

The score is irrelevant as only you see it

Many people have balance/money transfers on cards at 0% with utilisation well over 25%, often 90-95% early on and bounce the debt along onto other cards at 0% without issue. If you have an interest bearing debt then the utilisation may be a factor but the fact you have debt you can't pay off every month is far more of a worry to potential lenders.

Gold_bullion

Nasqueron said:

Gold_bullion said:

I've played around with this extensively over the years and I reckon it DOES matter even if you pay off your cards in full - it's just that most people who do so will happen to stay below 25% utilisation of their TOTAL credit limit anyway, so it isn't a factor for them.

The first thing to realise is that the day-to-day "balance" on a credit card is not what is reported to the CRAs. They only get told the STATEMENT balance and they are blind to what has been put onto or paid off a card between statement dates.

Also, even if you are deliberately maintaining a balance on a card at 0% APR and making the minimum payment having paid a fee or taken out a new card with no BT fee, your credit score will improve if you keep the balance below about 75% of the INDIVIDUAL card's limit. Above this it will damage your score, even though the CRA should flag it as a promotional rate.

You might do this in the current environment as it is perfectly possible to make a 3%+ arbitrage over what has been paid in fees for BTs (easily sub 2% annualised at the moment) by keeping the money in a bond or an instant access account (ISA even) at over 5%.

However, the OVERALL 25% CC utilisation rate is still important and it will damage your score with all 3 UK CRAs if you exceed this (remember based on STATEMENT balances). Experian also seem to have a monetary limit of around £30-35k on credit cards, even if it's all at 0%, beyond which it will damage your score. It's quite easy to achieve an excellent score with Equifax and Transunion with this level of CC debt (and indeed 1000/1000 with ClearScore who use Equifax) but Experian seems to peak out at about 920/999 ("Good").

Of course if you're meticulous and you have a heavy spending month you can simply make an extra payment to the CC so the extra spending doesn't get reflected on the statement, and hence you can maintain the required utilisation figure if you need to maintain good CRA scores, perhaps in the run up to a re-mortgage or whatever.

You can also, with their permission of course, utilise your partner's CRA "headroom" to keep you both below 25% overall utilisation. Many couples simply use one or more cards of one of the partners with additional cardholders added to the accounts for the other partner, but then the main cardholder's credit score is bearing the full brunt of the spending. By balancing the load across each partner on cards in their own respective names, the "over-utilised" partner can improve their score with no detriment to the "under-utilised" partner, thus giving a better overall CRA presentation to lenders potentially before, say, a joint mortgage application.   

The score is irrelevant as only you see it

Many people have balance/money transfers on cards at 0% with utilisation well over 25%, often 90-95% early on and bounce the debt along onto other cards at 0% without issue. If you have an interest bearing debt then the utilisation may be a factor but the fact you have debt you can't pay off every month is far more of a worry to potential lenders.

It's not irrelevant as it's the closest thing you're gonna get to a "score" of what lenders may think of you, particularly if you monitor all 3 CRAs on a regular basis. To say otherwise is to say that the CRAs are deliberately misleading you as to your credit worthiness with lenders, which would be against their interests as they are trying to flog you credit via their sites, from which they get a commission.

What I'm saying is that if you go above 25% TOTAL utilisation on all cards, your scores will take a hit and lenders won't offer you new cards with any kind of decent limit. It's a different story on INDIVIDUAL cards - as you say these will often be c. 95% utilised when a BT deal is first taken. 

CliveOfIndia

Gold_bullion said:

It's not irrelevant as it's the closest thing you're gonna get to a "score" of what lenders may think of you, particularly if you monitor all 3 CRAs on a regular basis. To say otherwise is to say that the CRAs are deliberately misleading you as to your credit worthiness with lenders, which would be against their interests as they are trying to flog you credit via their sites, from which they get a commission.

What I'm saying is that if you go above 25% TOTAL utilisation on all cards, your scores will take a hit and lenders won't offer you new cards with any kind of decent limit. It's a different story on INDIVIDUAL cards - as you say these will often be c. 95% utilised when a BT deal is first taken. 

What you seem to be failing to grasp is that the score dished out by the CRAs bears no resemblance to the internal scores generated by each individual lender.  Each lender will have very different algorithms, and will assign different weightings to each data point depending on their particular risk appetite, target customer base and internal business aims.

It's well-documented that the CRA score will drop in response to any change in your credit circumstances - whether good, bad, or indifferent - and will gradually increase over a period of stability.  For this reason, the only practical purpose they serve is to alert you to changes.  If you see a sudden unexplained drop, check your files to make sure nothing has happened that you're unaware of, such as someone fraudulently taking out credit in your name, or a missed payment being erroneously reported.

And to reiterate what has already been stated more than once, the only people who care about utilisation percentages are the CRAs.  As long as you're paying in full every month then a lender doesn't care whether you're using 5% or 95% of your limit.  In fact, there's an argument to say that using a large proportion of your available credit is beneficial, as this means the lender is making a decent chunk of money from the fees they charge the retailer on every transaction.  If you're not using much of your available credit, lenders will often reduce your limit.  They have a finite amount of credit to offer, so if you're not using it they'll offer it to another customer who will use it, and who will generate more income for them.