How much of my credit limit should I use?

Ever stared at your credit card limit and wondered how much of it you should be using? You’re not alone. While a big limit might seem like an invitation to splash out on a dream holiday or home renovation, the way you use it can have a bigger impact on your credit health than you might think.  

Here’s the thing: your credit utilisation rate (that’s the percentage of your total available credit you’re actually using) is one of the most influential factors in your credit score. But finding the sweet spot isn’t always straightforward – use too little, and you might struggle to build a strong credit history; use too much, and it could signal to lenders that you’re reliant on it.  

To help you cut through the confusion, we’ve outlined some tips for staying in control of your credit usage and answered some of the most common questions on the topic.  

How much credit should you use? 

To answer this, you should consider: 

1. Your personal circumstances 

Using your credit card is fundamentally like any other loan agreement; you’re borrowing money and committing to paying it back after a specified time. This means it’s best to make sure you can honour the agreement by borrowing an amount that you’re confident you can pay back. 

Your personal circumstances, including income, whether or not you have dependents, monthly expenses, and long-term goals, might influence this decision.  

2. Other credit commitments  

When deciding how much of your card’s limit to use, it’s important to first consider all your existing credit commitments before taking on more repayments. This way, you’ll have a better understanding of how using more of your credit limit might affect these overall commitments, helping you decide on a manageable amount of credit to borrow.   

Borrowing more on your credit card means you have more credit to pay back, which can either translate to larger monthly repayments or more frequent ones.   Importantly, these commitments will also collectively impact your credit score. We explain how they do that in the next section. 

3. The impact on your credit score 

Lenders consider different factors when calculating your credit score, which may include your credit utilisation rate (CUR), also known as your credit utilisation ratio. Your CUR is the proportion of your available credit that you’re actively using across all your lines of credit, expressed as a percentage. The weight of its importance may vary between lenders.  

It could be beneficial to keep your credit utilisation rate around 30% to help maintain a healthy credit score. A rate that’s too high or too low can impact your score negatively because:  

• A utilisation rate that’s too low may lead lenders to believe that you don’t have much borrowing history, which might make them hesitant about lending to you.   

• A utilisation rate that’s too high can signal to lenders that you’re too reliant on credit, and they might have doubts about your ability to comfortably make repayments towards a new line of credit. 

 So it’s best to maintain a credit utilisation rate that demonstrates you’re experienced in managing credit responsibly, but aren’t overly reliant on it.  

Tips for staying in control of your credit usage 

Staying in control of your credit usage is an important part of managing your finances and keeping your credit report in good shape. Here are some general tips for doing just that:  

• Be sensible with your spending. Managing your credit is just another part of your personal finances, so general ‘good’ principles apply, such as setting a budget that works for you and keeping track of your spending.   

• Remember that it’s not free money. Keep this in mind when using any kind of credit – it has to be paid back eventually and possibly with interest.    

• Set up balance alerts. Many credit card providers in the UK let you set up alerts through their apps and online portals. You can usually define a balance limit for your card and set up alerts to be notified when your account is approaching it.   

• Don’t forget the additional charges. When you think of credit usage, keep in mind that the price of each purchase isn’t the only factor contributing towards it. Interest  and additional fees also use up your credit limit. 

Summary: How much of my credit limit should I use? 

When you’re deciding on how much credit to use, weigh up how easy it is for you to pay back. This means considering your personal finance circumstances, such as your income and any dependents, as well as any other credit commitments, such as mortgages and car financing.  

Also, your credit utilisation rate (CUR) is an essential reference point in the context of your credit score. Lenders may be hesitant to extend credit to borrowers with a CUR that’s too low or too high, which is why it could be beneficial to keep it around 30%.  

Once you work out roughly how much of your credit limit to use each month, there are different steps you can take to stay within this self-imposed limit. These include setting up balance alerts for when you hit a certain threshold on your limit and remembering to account for additional charges. 

Credit limits: Frequently asked questions 

1. What is a credit limit? 

It’s the maximum amount of credit that the lender has approved for you to borrow on a particular credit card. When you’re looking for a credit card, it’s important to know that you’ll only see the advertised credit limit before being approved for the card. This isn’t necessarily the limit you’ll be offered. 

2. How is my credit limit determined? 

The credit limit you’re offered depends on the card provider, your individual circumstances, and the card’s own terms and conditions. Prospective lenders will check your credit report, which includes your credit history, when they’re reviewing your application.     Your credit history gives lenders insight into your previous borrowing, helping them decide whether to approve your application and what limit to offer.  

3. Can I exceed my credit limit? 

Attempting to exceed your credit limit means you’re violating the agreement between you and the lender, so your card provider may block the transaction. Some providers may allow the transaction to go through, but consequences could apply, such as a penalty fee or blocking your card until you reduce or settle the balance.     Another possibility is that your provider might cancel any promotional offers or give you less favourable terms going forward, such as a lower credit limit or higher interest rate.