Credit Score: How exhausting credit card utilisation limit can affect your credit score?
If you use your credit card to its full limit, you credit score will take a hit. So, what credit card limit you should utilise to maintain a healthy credit score. Know it in this article!
Credit Score: In today's time, the use of credit cards has increased a lot. Not just in cities, but people residing in Tier-2 cities and rural areas are also using it. Earlier, people used to use credit cards for big transactions or for any deals, but now credit cards have started being used in making every small and big transaction. By doing credit card transactions, you get some reward points, by redeeming which you can get some cashback or shopping vouchers. This is the reason why people use credit cards more and more. Some people even exhaust their entire credit card limit. But this is not a healthy practice as it can also mar your credit score. Let us tell you how much credit card limit you should use, so that your credit score is not affected.
What is credit limit?
Credit card is a kind of loan. That is, in a way, you take a loan from the bank, spend it and then repay it later.
Banks set a limit on every credit card according to your credit score.
You cannot shop more than that limit using that card.
Should the entire credit limit be used or not?
Even though you have been given a limit to spend on the credit card, which you can use completely, but you should not do so.
In fact, the bank considers customers who do this as risky customers.
The bank feels that this customer is too dependent on loans.
If you use your credit limit too much every month, then in such a situation, the bank can increase your credit limit.
But until the limit is increased, your credit score i.e. CIBIL score will continue to be adversely affected.
Take care of credit utilisation ratio
For a good credit score, you should keep your credit utilisation ratio i.e. CUR around 30-40 per cent.
If it exceeds 50 per cent, it is viewed negatively.
In such a situation, you may face difficulty in getting a loan or may have to pay more interest on the loan.
Whenever you apply for a loan, your credit utilisation ratio is also seen.
How to calculate CUR
To calculate the credit utilisation ratio i.e. CUR, divide the total due amount of the credit card by the total card limit.
After that, multiply the figure by 100. With this formula you can calculate the credit utilisation ratio of your credit card.
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