High Credit Utilization Ratio Profoundly Affects Your CIBIL Score
You may not be in school or college anymore; yet there exists a score which impacts you heavily. CIBIL Score – the three digit numeric score is a reflection of a person’s entire credit history and has the potential to impact one’s loans and borrowing ability, favourable or adversely, depending upon the score! Well, the CIBIL score’s range lies between 300 and 900; if you are nearing the lower end of the spectrum then you would benefit a lot by reading this article. And even if your CIBIL score is sky high, the information shared ahead will definitely come handy.
Let’s talk CIBIL score. The golden rule here is you should focus on the way you utilize and manage your credit card limit. Yes, it is not just the formal loans or bank borrowings that determine your CIBIL score; your credit card has a role, a LARGE role, to play as well! And all those readers who are worried about their low CIBIL scores, the easy way out is to increase the credit limit of your credit card but restrict the credit card usage once the limit is increased. In specific terms, this amounts to impacting CIBIL scores via high credit utilization ratio.
Credit utilization ratio, as the phrase is self-explanatory, reflects the ratio of total credit utilized by you on your credit card versus the total credit limit available. For example – when your credit card has a credit limit of Rs 50,000 while you spend 45,000 per month on the same credit card; your Credit Utilization ratio is 0.9. Now, it may sound silly, but getting your credit limit increased is the first step to improving your CIBIL score. Say your credit limit is now Rs 1,00,00. If you can restrict your credit card in such a situation, you will be able to bring down the credit utilization ratio which will impact your CIBIL score favourable. To exemplify further, spending 40,000 Rs from this limit of Rs 1 lakh will bring down your Credit utilization ratio to 0.4. And so will begin the improvement in your CIBIL score! Of course this “trick” works, but for long term benefits to your CIBIL score, it’s wise to bring your utilization even lower regardless of how high your limit gets.
The most expert tip in the context of credit card usage is to keep calm. Do not cancel your credit cards without understanding the repercussions. Similarly, do not over-use your cards. And finally, high credit utilization ratio is fatal for your credibility. And sharpen your shopper’s awareness! Resist the allure of shopping through your credit card as much as you can if you are working on improving your CIBIL score.
Keeping your overall credit utilization below 20% of the limit is ideal in our opinion. It’s better to for your CIBIL score to utilize 20% of your limit on two different cards than 40% on one card. Keep calm and credit on everyone! Stay smart and your score will soar.
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