Avoid using too much of your credit limit on your credit cards: Here’s why

For meticulous use of your credit card, you need to live by certain rules and adhere to them religiously. Likewise, regardless of what is your running credit limit on credit card, you should avoid using your full credit limit and instead restrict it to roughly 30%.

Your creditworthiness is being tracked by financial institutions and intermediaries. And, if there is high dependence on credit, it is not a positive signal for them, as a high utilisation ratio means overdependence on credit. So, while at times, it becomes a necessity to stretch your credit limit usage, make it a point to not do that often and instead curb it to below 30% of the total limit across cards.

Say, you have a credit limit of ₹3 lakh, use only 10-20% monthly, i.e., between ₹30,000- 60,000 per month, splitting spending across cards.

Credit bureaus give due weightage to the way in which you use or exhaust your available credit usage. In any case, when you smartly deploy your credit limit, your credit score will also see a boost. This exercise may boost your credit score by 20-50 points quickly.

Also, make it a point to pre-pay huge purchases just 2-3 days before the statement, so that the statement shows low balances.

Always try to pre-pay the spending partly if not fully, as the credit bureaus look for statement balances, i.e., utilisation. This utilisation rate is decided by the balance amount divided by the available limit.

In conclusion, CA Yogesh Birla, Director, Birla WP Management Co., said, the credit utilisation ratio (CUR) becomes a determining factor for your credit score to a certain extent. It is always suggested to take credit cards with higher limits, so your utilisation ratio remains lower, and a lower CUR is always good to ascertain a better credit score.