How low credit utilisation can help build your credit score

What exactly is credit utilisation?

The financial world is full of jargon-ish words, like ‘credit utilisation’. But essentially it just means ‘the amount of available credit that you use’.

If you have a credit card with a spending limit of £1,000, how much you choose to spend is your ‘credit utilisation’.

Why does it matter for my credit score?

Every month, the data about how you manage your credit cards and other credit agreements is reported to whichever of the three main credit reference agencies the credit issuer works with – Experian, Equifax or TransUnion. Sometimes the lender reports to all three, and sometimes it’s just one or two. 

The reporting would include things like: 

  • Your credit limit (the maximum amount you could spend)

  • Your current balance (how much you’ve actually spent)

  • The date you opened your account

  • Whether or not you’re behind on your repayments

The credit reference agencies then add the data to the credit file they hold for you. This means they can update your credit report, and generate your credit score as a way of summarising all that report information for you.

Read more about credit reference agencies and how to check your three credit reports and scores here.

What’s the golden rule of low credit utilisation? 

Spend less than 25% of your credit limit.
This means your credit report will show that you are not relying on credit too much.

Lenders like to see stability, so by spending less than 25% you’ll be showing you can handle credit responsibly. This good financial behaviour has a high impact on your credit score (woohoo!).

Work out your 25%

  1. Grab a calculator and enter your maximum credit limit
  2. Divide it by 100
  3. Then multiply the answer by 25. This is the amount you need to spend less than to help build your credit score.

For example: if your credit limit is £1,000, then spend less than 25% of this (£249.99)

Here are our top tips for mastering your credit card use.

Loqbox Grow helps you show ‘low credit utilisation’

We understand that not everyone is comfortable with using credit cards, so Loqbox  Grow could be a good alternative for you. You’ll receive a £500 credit limit that you only use to charge your Loqbox memberships and anything else you purchase within Loqbox, against. No hard credit check needed.

Your £2.50 weekly membership against a £500 credit limit? That’s a no-brainer for showing low credit utilisation! Learn more about the Full Loqbox membership and our other brilliant credit-building tools you’d have access to here.

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