Credit scoring models weight the proportion of available credit currently being used. The figure is recalculated every month from data the issuer reports, and it retains no memory of previous months.
The ratio compares balance to limit
Utilisation divides the reported balance by the credit limit, both for individual accounts and across all revolving accounts combined.
Scoring models treat a high ratio as an indicator of pressure, on the reasoning that borrowers approaching their limits are more likely to encounter difficulty.
The measure is relative rather than absolute, so a large balance on a large limit can score better than a small balance on a small one. The amount owed matters to affordability but not to this particular calculation.
Timing determines the number that gets used
Issuers usually report the balance as at the statement date, not after the payment is made. The figure reflects a snapshot rather than the cycle's behaviour.
Someone who pays in full every month can still show high utilisation if their spending sits on the account when the statement is generated.
Paying before the statement date, rather than before the due date, is what changes the reported figure, and the two dates are frequently confused.
It carries no history
Unlike payment records, utilisation is recalculated each period and previous values are not retained in the scoring calculation.
A high ratio therefore stops affecting the assessment shortly after the balance is reduced and reported, without a lingering effect.
This distinguishes it sharply from missed payments, which remain on the record for years regardless of subsequent conduct. One measure describes a current state and the other describes history.
Limit changes move it without any spending change
Because the limit is the denominator, a reduction increases utilisation even though nothing about the borrowing has changed.
Closing an unused card removes its limit from the total, which can raise the aggregate ratio noticeably.
Conversely, a limit increase lowers the ratio immediately, which is one reason requests are sometimes made purely for that effect.
Instalment debt is treated differently
Loans with fixed terms are not included in revolving utilisation, since there is no undrawn limit to compare a balance against.
Their balances are assessed against original amounts and repayment progress instead, which is a different measure with a different weight.
Model details, weightings and reporting practices vary between providers and jurisdictions, so the precise effect of any action differs by market.