Credit utilisation ratio and impact on credit score

Credit Utilisation and Credit Scores

Credit utilisation — percent of available credit currently used — is second-largest factor in credit scores after payment history (30% of FICO score). Lower utilisation indicates discipline; higher utilisation suggests financial stress. Target utilisation below 30% for good credit impact, below 10% for excellent scores. Calculator quantifies current utilisation, target difference, and provides framework for optimization. Simple metric with large impact on mortgage rates, loan approvals, and insurance premiums.

Credit Utilisation Targets

Excellent (0-10%): maximum credit score benefit. Good (10-30%): healthy range, minor impact. Moderate (30-50%): visible score impact, active concern. High (50-70%): significant score depression. Maxed (70%+): severe impact, often correlated with financial stress. Each utilisation range has measurable FICO score impact — 100+ point difference between 0% and 50%+ utilisation with otherwise identical credit profiles. Impact applies to both per-card utilisation and aggregate across all cards.

Worked Example for Typical Situation

Total credit limit 20,000. Current balance 5,000. Target 30%. Current utilisation 25% — already moderate. Target balance 6,000. Currently below target — good position. Recent 30-day activity matters — credit score reflects balance at statement close date, not current balance. Pay down before statement close for better utilisation report. Specific optimization: pay down 2-3 days before statement close to report below 10% to scoring agencies.

What the Calculator Does Not Model

Per-card utilisation (high single-card utilisation damages score even with low aggregate). Credit age effects on scoring. Payment history (most important factor). Credit mix (different credit types). Hard inquiries from recent applications. Specific scoring model variations (FICO versus VantageScore). The calculator focuses on utilisation metric specifically; comprehensive credit score optimization includes additional factors.

Improving Credit Utilisation

Pay down before statement close rather than due date — statement balance reports to credit bureaus. Request credit limit increases (reduces utilisation denominator without changing balance). Don't close old cards (reduces limits and credit age). Keep utilisation low across all cards not just aggregate. Autopay minimum then manual larger payment before statement. Spread balances across multiple cards rather than maxing single card. Combined approach typically reduces utilisation to target within 1-3 billing cycles.