Credit Card: Why Credit Utilisation Matters And How To Keep It Under Control

Credit card spending continues to rise as people increasingly use their cards to settle utility costs, buy electronics through No Cost EMI options, and shop online. Credit cards offer users greater flexibility to access financial resources during their daily activities.

The practice of handling all expenses through credit cards allows people to monitor their monthly spending efficiently. Individuals who receive their monthly salary either at the end of the month or at the beginning of the next month use the money to pay their credit card bills.

Credit agencies evaluate your spending through credit card systems that enable them to assign scores based on this information together with additional factors. The five main components which determine your credit score include your payment history alongside credit utilisation, credit history duration, credit mix, and new credit activity.

You can find your CUR percentage by dividing your total credit card balances by your total credit card limits, and then multiplying the result by 100.

Your credit utilisation ratio (CUR) serves as a significant indicator that reveals when your credit card spending becomes uncontrollable. The credit limit percentage which a consumer utilises through their credit card defines this measure.

A proper credit utilisation ratio remains essential for achieving an excellent credit score. The combined outstanding balance of Rs 60,000 across your two credit cards with a total credit limit of Rs 2,00,000 would equal 30 per cent when you calculate your Credit Utilisation Ratio using this formula: (Rs 60,000) / (Rs 2,00,000) * 100 = 30 per cent.

Credit cards serve as fundamental financial instruments which enable users to establish credit history and handle financial transactions and purchases. Using credit cards without proper care leads to financial distress along with accumulating debt. The money amount which people spend through credit cards varies from one month to another based on their normal spending patterns.

Therefore, consumers who want to keep their credit score healthy should maintain a CUR below 30 per cent. When they use too much of their available credit, it creates a high CUR which negatively affects their credit score. Using credit cards with care remains necessary for financial success.

The Credit Utilisation Ratio maintains the health of your financial situation in multiple ways.

Impact On Credit Score

Credit bureaus evaluate credit scores for people according to different assessment criteria. The credit score evaluation process heavily depends on CUR as one of its fundamental components.

Lender Evaluation

Your CUR stands as a crucial factor which lenders examine during their evaluation of your loan requests or credit card applications. The lower your CUR, the better lenders perceive your financial responsibility because it shows you handle credit wisely and pose less risk to lending institutions.

Hike In Credit Limit

Your credit limit increase prospects become better when you maintain a low Credit Utilisation Ratio. Your available credit increases when you obtain higher credit limits, which results in a lower Credit Utilisation Ratio and improved credit score.

The practice of maintaining a low CUR enables you to avoid substantial interest payments on your credit card balances, particularly when you need to pay the balance monthly. 

The chances of getting a higher credit limit increase when your spending approaches or exceeds your current limit. Card issuers sometimes grant increased credit limits to their customers who consistently make their debt payments promptly. The method serves as one way to maintain your CUR below 30 per cent.

You can spread out your expenses by signing up for an additional credit card. The knowledge of credit utilisation functions remains crucial since it represents only one of multiple factors which determine your creditworthiness. Your credit card expense management enables you to transform the situation into something beneficial.