How does regular credit card usage affect your credit score over time? Experts explain

livemint.com:

So you have your credit card and your bank has given you an offer of some tempting loan offers. You have been eying those money splurging dreams that you have been waiting so hard for, that trip to Bali or London, that fancy bike, that LCD TV, etc. You have the urge to max out your credit.

Warning – bad move. That urge to splurge may be leaving you with a bad headache in your finances going forward.

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“Credit utilisation refers to the percentage of your available credit that you are currently using, and it plays a crucial role in determining your credit score," explains Ashish Tiwari, Chief Marketing Officer, Home Credit India.

The impact of credit utilisation on your credit score is significant and can affect your creditworthiness positively or negatively, depending on the usage.

One should never exhaust the limit of their credit card/ revolving credit lines. “It is ideal to keep the average credit utilisation ratio around 50 per cent," advises Tiwari.

A high credit utilisation ratio, on the other hand, reflects a credit-hungry mindset, which lenders perceive as financially risky behaviour. It suggests a potential inability to manage finances effectively, leading to a lower credit score.

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“A lower utilisation of the available credit limit of your credit card reflects responsible spending and allows for buffers in case of any contingency," says Sanjeet Dawar, Managing Director, CRIF High Mark. Therefore, a lower limit utilisation is considered favourable while computing your credit scores.

“A low credit utilisation ratio may showcase prudent