Credit utilisation ratio: How to keep it at an optimum level | Mint

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 utilisation under 30 percent of the overall limit. For example, when the credit limit of your credit card is ₹10 lakh, the credit utilisation ratio should remain under ₹3 lakh.

Although you are completely free to exhaust the card, it is not advisable to do so to optimise your credit score.

What is the credit utilisation ratio?

The credit utilisation 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, higher the credit score and higher the ratio, 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 jewellery, furniture and clothes at any given point of time, you can buy jewellery in one month, 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 didn’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 for raising your 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 utilisation ratio. For instance, when you have a credit card bill of ₹5 lakh and 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 utilisation as low as possible. And 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.