The Consequences of High Credit Usage

At a Glance

This blog explains how high credit usage, or relying too heavily on loans and credit cards, can hurt your financial health. The key consequences of high credit usage are lower credit scores, higher interest rates, difficulty securing loans or mortgages, financial stress, and long-term setbacks to major goals like buying a home or saving for retirement. 

High Credit Usage

Using credit cards or loans can be incredibly helpful, as long as you manage them wisely. However, high credit usage can lead to serious financial problems. 

Many people don’t realise that consistently using too much of their available credit, also known as having a “high credit utilisation ratio”, can harm their credit score and overall financial health, even if they have the ability to pay.

Whether it’s due to emergencies, lifestyle choices, or overspending, carrying a high balance of debt tells lenders that you may be relying too heavily on borrowed money. This can affect your ability to get approved for future loans or result in higher interest rates.

In this blog, we’ll explain what high credit use means, how it impacts your credit score, and the potential long-term consequences it can have on your financial stability. We’ll also share tips to help you reduce your credit usage and build healthier financial habits for a more secure future.

1. Lower Credit Scores and Reduced Borrowing Power

High credit use can lower your credit score, making it harder to borrow money in the future. This is because credit scores are partly based on how much of your available credit you’re using. 

If you regularly use more than 30% of your limit, it could signal to lenders that you’re relying on credit too much. A lower score can affect your chances of getting approved for loans, credit cards, or even a mortgage.

It may also lead to higher interest rates when you do get approved. That’s why keeping your credit usage low is important, as it helps maintain a strong score and can give you better borrowing options.

2. Higher Interest Rates on Future Loans and Credit Cards

When you use a high amount of credit, lenders may see you as a higher risk. As a result, they might offer you loans or credit cards with higher interest rates. 

This means you’ll end up paying more money over time, even if you borrow the same amount as someone with better credit. For example, a higher rate on a car loan or personal loan could add hundreds or even thousands of pounds to your total repayment. 

On the other hand, using less credit shows lenders you manage money well, which can help you qualify for better deals and save money on future borrowing.

3. Difficulty Getting Approved for Additional Credit or Mortgages

High credit usage can make it harder to get approved for new credit cards, loans, or mortgages. Lenders check your credit report to see how much of your available credit you’re using. 

If it looks like you’re already relying heavily on credit, they may worry that you won’t be able to handle more debt. This could lead to rejections or smaller loan offers. Even if you’re earning well, high usage can still raise red flags.

To improve your chances of approval, you need to try to keep your credit usage below 30% and pay down balances regularly to show responsible credit behaviour. 

At Salad, while we won’t check your credit score, we will use Open Banking to assess your current financial situation. This will give us a clearer idea of whether or not you can afford to repay a loan.

4. Increased Financial Stress and Risk of Missed Payments

Using too much of your credit can lead to increased financial stress. When your loan or credit card balances are high, your monthly payments also go up. This can make it harder to keep up with bills and other expenses. 

If money gets tight, you might miss a payment, which can lead to late fees, higher interest, and damage to your credit score. Over time, this can create a cycle of debt that’s tough to break.

Keeping your credit usage low will help you stay in control of your finances, avoid missed payments, and reduce stress about money and debt.

5. Long-Term Impact on Your Financial Health and Goals

High credit use doesn’t just affect you now, it can have long-term effects on your financial health and future goals. A lower credit score caused by high usage can make it harder to buy a home, get a car loan, or even qualify for rental housing. 

You might also pay more in interest over time, leaving you with less money to save or invest. This can delay major life goals like starting a business, building a safety net, or planning for retirement. 

That’s why keeping an eye on your credit usage is a smart step towards a stable financial future and reaching your long-term goals.

For Fair and Affordable Credit Options, Choose Salad

At Salad, we make affordable loan options available for almost every employed UK resident. We know that the credit score system isn’t always fair. That’s why we use an open-banking-based assessment to evaluate the financial situation of every applicant.

We’re an FCA-regulated and authorised organisation, so you can trust us to keep your financial data safe. Our ‘More Than Your Score’ loans can help you regardless of your credit score.