highlights
The ratio of the total limit of the card and the expenses is called credit utilization ratio.
The higher the ratio, the greater the impact it will have on your credit score.
The credit utilization ratio of the cardholder is updated every month.
New Delhi. The trend of using credit cards is increasing rapidly. As much as a credit card provides convenience, it can also create problems. Most of the customers using credit cards do not know how much of the total limit they should spend. If you think that you can spend the entire limit of the card and pay the bill on time, then you are wrong. Despite paying bills on time, your CIBIL score may deteriorate. It may sound a bit strange but it is 100 percent true that spending up to the full limit of the card can badly affect the credit score.
The ratio of the total limit of the card and the expenses is called credit utilization ratio. The higher this ratio is, the greater the impact it will have on your credit score. According to experts, if you want to keep your credit score high then you should not spend more than 30 percent of the total limit. For example, if your card limit is Rs 1 lakh, then you should not spend more than Rs 30 thousand through the card.
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Why should we reduce expenses?
Actually, the credit utilization ratio of the cardholder is updated every month. Therefore, companies also keep an eye on your credit card expenses every month. If most of your expenses are made through credit cards, then it sends a message to the companies that you are short of cash and mostly depend on credit. This puts you in the category of a risky customer, the effect of which is also visible on the credit score.
When does it have the greatest impact?
Even if your credit utilization ratio increases in a month, there is no need to worry, because companies update it every month and if the ratio decreases further, the credit score gets updated again. However, for some special occasions you should keep the ratio low. If you are planning to take a loan then it is beneficial to keep the credit utilization ratio low. With this you will get loan at low interest.
If you don’t spend at all…
Some people also think that if no expenditure is made through credit card then CIBIL will remain high. but it’s not like that. Even if you do not spend any money on your credit card, it will affect your CIBIL. In fact, if you do not spend any money, the companies feel that you do not have the capital to repay the credit and they put such customers in the risk category, due to which your CIBIL is also affected.
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Tags: Bank Loan, business news in hindi, credit card, Credit card limit
FIRST PUBLISHED: April 18, 2024, 15:23 IST