Millions of UK consumers are risking damaging their credit score because they are unaware of the ’30 per cent rule’, which if ignored could make getting competitive deals on credit harder in the future.
All overdrafts and credit cards come with a credit limit set by the lender, and the more of the credit limit you use could impact your credit rating.
Using up to around 30 per cent of your credit limit on overdrafts and credit cards is deemed sensible by lenders and could even improve your credit rating if payments are always made.
However, using more than 50 per cent of your credit limit can have a detrimental effect on your future credit score as it can be seen as irresponsible.
Research by ClearScore showed that 37 per cent of UK consumers (around 18 million) are using over 30 per cent of their credit limit, with 78 per cent among these even using more than 50 per cent.
Further research showed that 43 per cent have missed a payment in the past 12 months, while 12 per cent have missed several payments.
The worst culprits were found in the Colchester area, where consumers were found to be using more than their credit limit at a huge 118 per cent. Newport consumers were found to be using 84 per cent of their credit limit, while consumers in Bath used up to 70 per cent.
At the other end of the scale, borrowers in the City of London were only found to use an average 38% of their limit – the lowest in the UK.
Michelle Highman, CEO of The Money Charity, commented: ‘It’s worrying that so many people are missing payments and putting themselves at risk of damaging their credit history. Whenever you use credit, it’s important to make sure you can pay back the money. Create a budget and work out what you can really afford. And make sure you know what happens if in the future you find you can’t make the payments.’
To maintain your credit score the general advice is to stick to less than 30 per cent of your credit limit. Also avoid taking out more than one credit card and using less than 30 per cent of each, as this can further damage your credit score.
Plan to repay your balance every month, as this could have a positive effect on your credit rating.