Some lines of thought have suggested it may be able to strengthen an individual credit score by transferring a credit card balance onto multiple cards. I.e. a £5,000 balance transferred across 5 cards by putting £1000 on each.

This may not actually be advisable be advisable in the UK.

In the US there is something known as a ‘credit-utilization ratio’ which suggests if an individual has lots of credit at their disposal, are only using a relatively small amount of it and are managing it successfully, they will be regarded as a fairly safe risk when it comes to credit.

This suggests that if; someone has 5 cards say, each with a limit of £5,000 and only a £1,000 balance on each, they are left with £20,000 of available credit and are responsible with their borrowing and credit use. This makes sense; they are not maxed-out so why should they not be considered for more credit?

Not so in the UK.

It would seem that individuals in the UK with large amounts of available credit may actually be declined for having ‘too much credit’.

The thinking behind this is if an individual has 5 cards with a £5,000 limit for each and only £1,000 balance on each with £20,000 of available credit, why do they need more?

This also loosely suggests that some people may be refused further credit for not making full use of the existing credit available to them.

This seems harsh and unfair because the interest rate on most credit cards (not 0% offers) is often much higher than that of a loan. So someone wishing to clear their cards with a lower rate loan could end up being declined by some lenders and be unable to benefit from the best available rates.

However one argument for this way of thinking that does make sense is that if the person with the available credit of £20,000 went out and spent the lot, they could very well find themselves in dire financial straights and unable to repay.

Some lenders may refuse further credit on this basis because if they were to provide a loan and the borrower then went out and ‘maxed out’ their cards, there is a strong possibility that the loan would not be repaid in a timely fashion.

Of course what determines if an individual is approved for credit is set out by the lender, not the credit reference agency. Credit reference agencies only compile data, it is up to the lender to make a decision based on the information and different lenders have different criteria.