Credit Card: Should You Ever Use Your Full Credit Limit? How will this affect your credit score?

If you are using credit cardYou must remember that it is not advisable to spend more than your ideal credit limit. Not only does this ruin your financial plan, but it can also negatively impact your credit score.

The ideal credit utilization ratio is 30 percent. If your credit limit ₹7 lakhs, then ideally credit utilization ratio (CUR), you should not spend more than ₹2.10 lakh (30 percent ₹7 thousand).

What is credit utilization ratio?

For those who don’t know, your credit utilization ratio is the percentage of your available credit that you are currently using. This is an important factor in determining your credit score, which shows how much of your credit limit has been used on your credit cards.

It can be calculated using the following formula:

(Credit Card Balance/Credit Card Limit X 100).

Let’s look at the illustration. Some people have a total credit card balance of ₹5 lakhs and the total credit limit is ₹10 lakh. This means that the CUR is 5/10 X 100, which is equal to 50 percent.

A low credit utilization ratio (less than 30 percent) is generally considered good for your credit score. A low CUR means you manage your credit responsibly and don’t rely too much on borrowing.

This indicates to lenders that you are less of a risk, which improves your credit score.

However, if you’re struggling to maintain your ideal credit utilization ratio, you should follow these tips.

Four tips for managing your credit use

1. Timely payment: You must pay off the balance by the statement closing date to reduce your stated balance.

2. Increasing your credit limit: You can ask your bank to increase your credit limit. A higher limit reduces your utilization rate, as long as your expenses don’t increase.

3. More than one card: If you have more than one card, you can spread out your spending to avoid overusing any one card.

4.Closing the card: Closing a credit card lowers your total available credit, which can increase your ratio.