Credit utilisation and its impact on mortgage approval
Credit utilisation—the ratio of your credit used versus credit available—is a key factor lenders consider when assessing mortgage applications in the UK.
1. What is Credit Utilisation?
- The percentage of your available credit currently used.
- Formula: Credit Utilisation = Current Credit Used ÷ Total Credit Limit × 100
Example: £2,000 used out of £10,000, total credit = 20% utilisation
“Keeping credit utilisation below 30% helps UK lenders view you as a low-risk mortgage applicant.”
2. Why Credit Utilisation Matters
- High utilisation indicates reliance on credit and potential repayment risk
- Lenders prefer applicants with low credit utilisation for better mortgage terms
- Directly impacts credit score along with payment history
3. How to Improve Credit Utilisation
- Pay down balances: Focus on high-interest cards first
- Increase credit limits: If responsibly managed, this lowers utilisation
- Avoid new debt before applying: Keeps ratios low for lenders
- Monitor regularly: Track usage to maintain below 30%
4. Tips for Self-Employed Applicants
- Keep personal and business credit separate
- Ensure any business credit usage is consistent and documented
- Include accountant letters to verify financial stability
FAQs
Q: What is the ideal credit utilisation for a UK mortgage?
A: Below 30% is recommended; lower is even better.
Q: Can high utilisation stop me from getting a mortgage?
A: It may limit your options or require a larger deposit, but it doesn’t automatically prevent approval.