More and more people are paying their monthly credit utilization bill, online shopping and purchasing electronic goods, due to which credit card payments are increasing. A credit card makes your financial balance flexible. Some people manage all their expenses through credit cards because it helps them keep track of their expenses every month. When their salary is deposited at the end of the month or the beginning of the next month, they pay their credit card bills.
However, there are many precautions while using credit cards that you should keep in mind. Your payment history, credit utilization and new credit are the key parameters to determine your credit score.
Credit Utilization Ratio
This is an important factor that shows that your credit card expenses are getting out of control. This is the percentage of the credit limit used by a person on his credit card. To calculate your credit utilization ratio (CUR), divide your total credit card balance by your total credit card limit and then multiply by 100. By doing this you will know your CUR. Maintaining a healthy CUR is important for a good credit score. For example, if you have two credit cards with a total credit limit of Rs 1,00,000 and you currently have Rs 30,000 as a combined outstanding amount on both cards, your credit utilization ratio will be 30 per cent. Experts say that a CUR of less than 30 per cent is recommended to maintain a good credit score. A high CUR means the consumer is using too much of their available credit, which can negatively impact their credit score. Therefore, it is important to use credit cards responsibly.
Impact On Credit Score
Credit bureaus like CIBIL, Experian, Equifax and CRIF calculate credit scores of individuals based on various factors. CUR is one of the important factors affecting your credit score. When you apply for new credit, such as a loan or another credit card, lenders evaluate your CUR. According to experts, consumers should set a budget to effectively manage their credit card expenses.
Credit Limit
Maintaining a low CUR can improve your chances of increasing the credit limit on your existing credit card. A higher credit limit will increase your available credit and further reduce your CUR, potentially benefiting your credit score. If your expenses are high, you can ask for an increase in your credit limit. Sometimes card lenders offer higher credit limits to consumers who repay their loans on time. This is also a way to keep your CUR less than 30 per cent.
