Credit utilization ratio: How to keep it at an optimum level
The credit utilization ratio is the percentage of your total available credit that you are currently using. It is a key factor affecting your credit score
If you have recently started using a credit card, it is recommended to avoid exhausting its entire credit limit. Ideally, a card user is expected to keep the credit utilization under 30 percent of the overall limit. For example, when the credit limit of your credit card is ₹10 lakh, the credit utilization ratio should remain under ₹3 lakh.
Although you are completely free to exhaust the card, it is not advisable to do so to optimize your credit score.
What is the credit utilization ratio?
The credit utilization ratio is the percentage of your total available credit that you are currently using. It is an important metric of your credit score. Smaller the ratio, the higher the credit score, andthe higher the ratio, the smaller the score.
In other words, credit score and CUR are inversely proportional to each other.
Steps you can take to keep CUR low
1. Keep avoidable expenses for the next month: In case you have too many expenses, you should stagger them across various months. For instance, if you want to buy jewelry, furniture, and clothes at any given pointinf time, you can buy jewelry in one month, and clear its bill in the following month.
Then you can use your card to buy furniture, make its payment in the following month, and finally buy clothes two months later. This way, you don’t exhaust the entire limit of your card.
2. Try to use more than one credit card: When you use more than one credit card, your overall credit limit increases. For instance, when you want a ₹10 lakh credit limit, and one credit card’s limit is capped at ₹5 lakh -- it is recommended to keep two credit cards with a limit of ₹5 lakh each.
This way even if you exhaust the entire credit limit of one credit card, it would still be 50 percent of your overall credit limit.
3. Raise your credit limit: You can reach out to the bank to request fto raiseyour credit limit.
4. Part payment to improve the ratio: When your credit card bill is too high, you can clear at least a part of it to improve your credit utilization ratio. For instance, when you have a credit card bill of ₹5 lakh so is your credit limit. You can at least pay ₹3 lakh to bring the CUR to 40 percent.
To sum up, you should try to keep your credit utilization as low as possible. If you have too many expenses lined up, then it is advisable to carry two or more credit cards to push your credit limit upward so that your CUR remains under 30 percent.
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