Is it true the % used of your credit card limit matters when calculating affordability?

FlyingFigLeaf

I am going to be a First Time Buyer in about 6 months and currently getting my ducks in a row.

I have a £6k balance on a £7k limit credit card. I've read that the % used of a credit card limit is important and that:

75% looks very bad 
50% not great 
30% ok

I do have other credit cards with zero balance and good limits so I could spread the balance around and make sure they are all under 30%.

This will cost me money in balance transfer fees though, so I wanted to get further opinions before I do so.

Can anyone say for sure that this really matters? What would it actually affect?

Does this genuinely make any difference? Should I do it?

All advice appreciated !

MattMattMattUK

FlyingFigLeaf said:

I am going to be a First Time Buyer in about 6 months and currently getting my ducks in a row.

I have a £6k balance on a £7k limit credit card. I've read that the % used of a credit card limit is important and that:

75% looks very bad 
50% not great 
30% ok

I do have other credit cards with zero balance and good limits so I could spread the balance around and make sure they are all under 30%.

This will cost me money in balance transfer fees though, so I wanted to get further opinions before I do so.

Can anyone say for sure that this really matters? What would it actually affect?

Does this genuinely make any difference? Should I do it?

All advice appreciated !

As far as lenders are concerned it does not matter, they will care that you are carrying £6k on a credit card though, which will have a significant impact on affordability. 

grumpy_codger

The total amount of your debt does matter for affordability calculations.

Credit utilisation ratio (total used / total available) may have effect on your credit score, that all lenders calculate differently and may use too when making their decision about lending.

Herzlos

I think they generally look at total credit and not per card, so you saying you have other cards mean you're probably under 50% anyway. 

Your mortgage lender will be more concerned about how much you owe and the repayments, deducting that directly from your affordability. So you'd be best trying to pay them down as much as you can, which may mean transferring to a better rate. 
It's also worth mentioning that the reports may lag by a month, so you'd want to have the much of your paying down done by about month 4-5 though you can always provide a statement if it's vastly different. 

ka7e

I had a notification last month that my credit score had dropped because my credit card had a balance of over 50% of my credit limit. Rather galling as I always pay off the whole amount each month, and had done so by the time the notification was sent.

RAS

Credit scores are irrelevant in the UK, what matters is your credit record.

Although you can be a poor risk if you've never borrowed any money as well as if you've got consumer credit debt. They are looking at evidence of paying off debt.

JustinTime19

I would do a credit health check, Credit Karma/Experian offer free credit reports and that will give insight to what cards/accounts you have open and how healthy your credit record is. This will give you an opportunity to sort some of the red flags (if any), before you apply for a mortgage.

You should close down/reduce unused credit, a few years ago I was declined a loan because a credit card company gave me a very high balance limit even though I wasn't using the card.

You should also have a plan to sort out the 6k balance on your credit card ideally before you apply as this will be a factor in checking your affordability. In addition people are more likely to use Credit Cards during purchasing/moving etc.

penners324

ka7e said:

I had a notification last month that my credit score had dropped because my credit card had a balance of over 50% of my credit limit. Rather galling as I always pay off the whole amount each month, and had done so by the time the notification was sent.

Because the data is usually the balance on the last day of the month. But it's meaningless anyway