EyeOnWhat it means
Utilisation compares what you owe with what you could borrow. If you have a card with a 5,000 limit and a balance of 1,500, your utilisation on that card is 1,500 / 5,000 = 30%.
Many scoring models take utilisation into account because a high figure can suggest that a person is relying heavily on credit. Models differ, so there is no single magic percentage.
How it works
Utilisation can be measured on each card and across all cards combined. Balances are often taken from the figure reported by the lender at a point in the statement cycle, which may be before you pay the bill.
It changes as quickly as balances and limits change. Paying down a balance or having a limit raised lowers the percentage; spending more or having a limit cut raises it.
A simple example
If the 5,000 limit above were raised to 10,000 and the balance stayed at 1,500, utilisation would fall from 30% to 15%. If instead the balance rose to 4,000 on the original limit, utilisation would be 80%. Neither figure says anything about whether the borrowing is affordable, which depends on your own budget.
Things worth checking
- Utilisation measures use of credit; it does not measure affordability.
- A limit increase can lower the percentage, but it also adds borrowing capacity you may not need. Some limit increases involve a credit check.
- Balances reported to agencies may differ from your balance after you pay. Check when your lender reports.
- Closing an unused card can reduce your total available limit and raise utilisation.
How it varies by country
Not every country's scoring systems use utilisation in the same way. It is most commonly discussed where revolving credit cards are widespread.