Exhausting credit card limit? This could affect your credit score – here's how

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Credit utilisation refers to the ratio of your credit card balances to your credit limits. It plays a significant role in credit score calculation, particularly in the FICO scoring model, which is commonly used by lenders. 

While CIBIL doesn’t reveal the exact methodology which it uses to evaluate credit scores, credit utilisation ratio is still a key factor in determining your CIBIL score, which is quite similar to other credit scoring models.

Lenders use credit utilisation to assess your level of risk as a borrower. A high credit utilisation ratio suggests that you’re using a significant portion of your available credit, which may indicate financial strain or a higher likelihood of defaulting on payments. 

Conversely, a low credit utilisation ratio indicates responsible credit management and may positively impact your credit score.

To maintain a healthy credit score, it’s generally recommended to keep your credit utilisation ratio below 30 percent. 

This means using no more than 30 percent of your available credit. However, an even lower utilsation ratio, ideally below 10 percent, can further improve your credit score.

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It’s essential to monitor your credit utilisation regularly and strive to keep it low, as it can have a significant impact on your overall creditworthiness and ability to qualify for favourable loan terms and interest rates.

A low credit utilisation ratio indicates responsible credit management and may positively impact your credit score.

It’s usually recommended to keep your credit utilisation ratio below 30 percent.

They can have significant effect on your score significantly since the score is a measure of creditworthiness.

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