There are more than 30 million credit card holders in the
country which has expanded the buying capability of the card holder as credit
cards are a source of instant credit without the hassle of any approval or
processing.
When you continuously use your credit limit to maximum it
shows that you do not have a grip on your finances. Your credit limit upon your
monthly utilization of your credit card is called credit utilization ratio . If
you max out your credit card it will have negative effects on your credit
score.
This is because the 4 credit bureaus – Equifax, CIBIL,
Experian and CRIF High Mark operating in India take your credit utilization
ratio into consideration when calculating your credit score which includes
other factors like payment history, length of credit history, credit mix and
the new credit.
What is the best
credit utilization ratio?
It is best to have a credit utilization ratio of 30% to 40%.
Which means if you have a credit limit of Rs.90,000 then you can use around
Rs.30,000 to Rs.36,000. This Rs.90,000 can be from 1 card or from multiple
cards. Anything above this your credit score will be affected. You might be
thinking that why go through all this trouble, I will just stop using my card
all together. Well sorry to burst your bubble but even if you don’t utilize
your credit card it gives the impression that you got the card without any
analysis of your financial situation, which shows you are not yet financially
responsible.
Ways to keep your
credit utilization ratio under agreeable levels
Here are some ways to help keep your credit utilization
ration under control
1.
Spread the spends
If you have multiple cards spread the spends across all the
cards to make sure your credit utilization ratio across all the cards are below
the 30%.
2.
Get an extra card
If you have only one card you can try and get another card.
You need to keep in mind that the reason for getting the new card was to make
sure your credit utilization ratio below the 30% mark. If you use more credit,
it fails the purpose of getting the new card.
3.
Increase credit limit
You can ask the card issuer to increase the credit limit of
your existing card. This is a useful way to improve your credit limit without
getting another card if you feel that you might not be able to control spends. This is only possible if you have
paid your dues on time and have a good track record. If you don’t then your
request will be rejected.
4.
Make payments before billing cycle
The card issuer will only report to the credit bureaus at
the end of the billing cycle and not at the end of the due date. So, if you can
pay some of the dues bringing down your utilized credit limit to 30%, you will
have no problem.
5.
Refinance your credit card debt
If you have been hard on your credit card usage previously;
look to refinance your card debt in the form of a personal loan; this could
help you clear off current debt which would have been stressing the utilization
ratio.
