There are more than 30 million credit card holders in the country which has expanded the buying capability of the card holder as credit cards are a source of instant credit without the hassle of any approval or processing.

When you continuously use your credit limit to maximum it shows that you do not have a grip on your finances. Your credit limit upon your monthly utilization of your credit card is called credit utilization ratio . If you max out your credit card it will have negative effects on your credit score. 

This is because the 4 credit bureaus – Equifax, CIBIL, Experian and CRIF High Mark operating in India take your credit utilization ratio into consideration when calculating your credit score which includes other factors like payment history, length of credit history, credit mix and the new credit.

What is the best credit utilization ratio?

It is best to have a credit utilization ratio of 30% to 40%. Which means if you have a credit limit of Rs.90,000 then you can use around Rs.30,000 to Rs.36,000. This Rs.90,000 can be from 1 card or from multiple cards. Anything above this your credit score will be affected. You might be thinking that why go through all this trouble, I will just stop using my card all together. Well sorry to burst your bubble but even if you don’t utilize your credit card it gives the impression that you got the card without any analysis of your financial situation, which shows you are not yet financially responsible.

Ways to keep your credit utilization ratio under agreeable levels

Here are some ways to help keep your credit utilization ration under control

1.       Spread the spends

If you have multiple cards spread the spends across all the cards to make sure your credit utilization ratio across all the cards are below the 30%.

2.       Get an extra card

If you have only one card you can try and get another card. You need to keep in mind that the reason for getting the new card was to make sure your credit utilization ratio below the 30% mark. If you use more credit, it fails the purpose of getting the new card.

3.       Increase credit limit

You can ask the card issuer to increase the credit limit of your existing card. This is a useful way to improve your credit limit without getting another card if you feel that you might not be able to control  spends. This is only possible if you have paid your dues on time and have a good track record. If you don’t then your request will be rejected.

4.       Make payments before billing cycle

The card issuer will only report to the credit bureaus at the end of the billing cycle and not at the end of the due date. So, if you can pay some of the dues bringing down your utilized credit limit to 30%, you will have no problem.

5.       Refinance your credit card debt

If you have been hard on your credit card usage previously; look to refinance your card debt in the form of a personal loan; this could help you clear off current debt which would have been stressing the utilization ratio.