The limit of your credit card does not automatically mean that you need to spend that amount frequently. Credit Utilization Ratio shows the portion of your credit limit being used and frequent high utilization implies a high reliance on credit. Hence, it plays a significant role in ensuring a good CIBIL Score.

Want to understand how credit utilisation affects CIBIL score? Tracking your card balances and keeping usage under control can help you maintain healthier credit habits before applying for new credit.

Credit Utilization Ratio

Credit Utilization Ratio is the portion of your credit limit that you are utilizing. For instance, if your credit limit is ₹1,00,000 and your outstanding credit amount is ₹30,000, then your utilization ratio is 30%.

The Importance of High Credit Utilization

Having high credit utilization can make you seem to depend more on your credit than on your own finances. The credit bureaus take into account your credit utilization ratio when they generate your credit score.

The higher the utilization, the more important it becomes to manage repayments carefully.

If your credit report shows an incorrect balance or payment record, an experienced CIBIL consultant or trusted CIBIL correction agency can help you understand the appropriate steps for correcting eligible information.

How to Keep Credit Utilization Under Control

The following can help:

1. 1. Do not keep spending close to the full amount of credit you have available.

2. 2. Make sure you pay off your credit card statements promptly.

3. 3. Do not keep accumulating debts simply through minimum payment plans.

4. 4. Keep an eye on your credit utilization rate.

5. 5. Do not use more credit to pay for unwanted expenses.

TransUnion CIBIL suggests keeping your balances low and your credit utilization rate under control.

PrimeScore is an easy way for you to keep track of your credit score from all of India’s major credit bureaus and know if any changes occur in your credit utilization.

Conclusion

Just because you have a high credit utilization ratio does not necessarily indicate that your CIBIL Score will drop; however, if you are using too much credit, it can adversely affect your credit score.

FAQs

What is a good credit utilization ratio?

It is always advised to keep the ratio low. In fact, TransUnion CIBIL has pointed out 30% as a good ratio even though there is no percentage which is a guarantee of getting a certain score. 

Does high credit utilization lower CIBIL Score?

Yes, high credit utilization can lower your CIBIL Score as it indicates more dependence on credit facilities.

Does paying the minimum amount lower the credit utilization?

No, it does not as the outstanding amount continues to contribute towards your credit utilization ratio and in turn, cost you more interest.

How do I lower credit utilization?

Paying down outstanding balances, controlling card spending, and avoiding unnecessary borrowing can help reduce utilization over time.