Credit Card: The adoption of credit cards is on the rise across the nation, with individuals in both small and large cities utilizing them to manage their financial expenditures. If you are a credit card user, it is crucial to understand how utilizing your entire credit limit each month may impact your credit score, also known as your CIBIL score.
Although you are permitted to use your credit card up to its designated limit, it is advisable to refrain from doing so, as this can adversely affect your credit score. This negative effect is primarily due to a high Credit Utilization Ratio (CUR).
Credit Utilization Ratio
Your credit score is influenced by various factors, one of which is the Credit Utilization Ratio, a percentage that indicates the extent to which you are utilizing your available credit limit. A higher usage of your credit card results in an increased CUR. If your CUR exceeds 30 percent, it may lead to a decline in your credit score. Utilizing the full limit can also lead banks and financial institutions to perceive you as overly reliant on credit.
To enhance your credit score, it is recommended to maintain your credit utilization ratio below 30 percent. For instance, if you possess a credit card with a limit of Rs 2,00,000 and you have spent Rs 80,000, your credit utilization ratio would stand at 40 percent.