You’ve been using your credit card all wrong

CREDIT cards can be a great way to spend but not using yours effectively can wreak havoc on your finances.

If you use more of your credit limit than the recommended threshold, it could also affect your ability to get a loan or mortgage in the future.


A popular TikToker shares just how much of the credit card limit people should useCredit: Tiktok/@aashsthapa

Aash Thapa, a personal finance enthusiast with 350k followers on TikTok, has revealed the reasons why you should never use more than 30% of your credit card limit.

He said in a recent video: “I got my 2000 limit on my credit card but everyone says not to use more than 30% of it.

“That sounds about right, try not to use more than 600 of it.”

He went on to explain that using more than 30% could damage people’s credit scores which impact their likelihood to get loans in the future.

“If the bank see that you’re using more than 30% of your limit, they might think you’re in trouble and you look like a risker person to lend to,” the TikToker added.

A credit score, sometimes called credit rating, determines your creditworthiness to lenders.

It is compiled by credit reference agencies such as Experian and Equifax.

Each company has its own scoring system based on your financial data and how good you are at managing your debts.

Equifax says that using more than 50% of your credit limit will show up as an amber or red flag on your credit report, which will affect your credit score.

It suggests to a lender that you’re living at the edge of your financial limits.

The upshot is, that just because you’re given a certain amount on credit – it doesn’t mean you should max it out.

The TikToker’s recommendation of not using more than 30% of your credit card limit is echoed by finance experts who provide credit score advice to consumers.

Justin Basini, co-founder of ClearScore said: “At ClearScore, we recommend using no more than 30% of your total credit limit at any one time.

“Doing this and paying off your card(s) in full every month shows lenders that you can be trusted with credit.

“Over time, this can have a positive impact on your credit score, which can then help you get better credit deals with lower interest rates in the future – making it less expensive to borrow money.”

How to improve your credit score

WE explain how to improve your credit score.

  • Don’t make too many credit applications – Making lots of requests in a short period of time can be seen as a sign of financial distress – and each application will be recorded on your file. Use a “soft-search” eligibility calculator to show how likely you are to be accepted.
  • Always pay your bills – Late payments are also recorded in your file so make sure you pay your monthly bills on time including utility and credit cards.
  • Pay down your debt – Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already have a large amount of debt.
  • Use a credit builder credit card – These cards tend to have high interest rates compared to normal cards but if you can show you’re a responsible spender with them, it can improve your chances in the eyes of lenders.

He also points out that same rule applies if you have more than one credit card – and you should still keep your spending at less than 30% of their combined limit.

James Jones, head of consumer affairs at Experian agrees that it’s sensible to keep the balances on your credit cards to no more than 30% of the limits.

He said: “If your credit report shows you are already heavily reliant upon credit, other lenders may worry about your ability to take on another commitment.

“You might not know that how you manage existing cards has a significant impact on your credit score.

“For example, a five-year-old credit card with a high limit, a low balance, and perfect payment record can boost your Experian Credit Score by a whopping 200 points, which on its own could lift your score from fair to excellent. ”

Besides limiting your credit card spending, you can also boost your credit score by paying Netflix or your council tax bill.

We also round up ways to get a mortgage if you’ve got a poor credit score.

Plus, here’s how to build up your credit score without taking out a credit card.

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