The Key Metric: Credit Utilisation Ratio
You might pay your credit card bills on time every month and still see your CIBIL score stagnate or even drop. The likely culprit? A high Credit Utilisation Ratio (CUR). In simple terms, CUR is the percentage of your total available credit that you are
currently using. For example, if you have one credit card with a limit of ₹1,00,000 and your outstanding balance is ₹40,000, your CUR is 40%. Credit bureaus and lenders in India monitor this ratio closely because it makes up a significant portion—roughly 30%—of your total credit score. A low ratio suggests you are managing your finances responsibly, while a high ratio can be a major red flag.
Why High Utilisation Signals Stress
From a lender's perspective, a consistently high CUR suggests that you are heavily dependent on credit to manage your day-to-day expenses. It raises questions about your financial stability and whether you have enough of a cash buffer to handle emergencies. Even if you pay the entire balance in full each month, a high ratio reported on your statement date can still pull your score down over time. For instance, using ₹80,000 of a ₹1,00,000 limit every month creates an 80% utilisation rate. This pattern can signal financial distress to lenders, making them hesitant to approve new loans or offer favourable interest rates.
The 30% Rule of Thumb
So, what is a “good” credit utilisation ratio? Most financial experts and credit bureaus in India agree that you should aim to keep your CUR below 30%. This is considered the safest range for maintaining a healthy credit score. While anything between 30% and 50% might be seen as acceptable, utilisation above 50% is a clear risk signal and can negatively impact your score. For those aiming for an excellent credit score (above 800), keeping utilisation even lower, in the 1-10% range, is ideal as it shows you are using credit but not over-relying on it.
It’s About All Your Cards Combined
It's a common mistake to think that maxing out one card is fine as long as others are empty. Credit bureaus look at both the utilisation on individual cards and your overall utilisation across all credit lines. To calculate your overall CUR, you add up the balances on all your cards and divide that by the sum of all your credit limits. For example, if you have two cards, each with a ₹1,00,000 limit, and you have a balance of ₹40,000 on one and ₹10,000 on the other, your total balance is ₹50,000 against a total limit of ₹2,00,000. Your overall CUR is a healthy 25%. Having multiple cards can actually help lower your overall ratio if managed wisely.
Simple Strategies to Improve Your Ratio
If your CUR is higher than you'd like, there are several practical steps you can take to lower it. The most direct method is to pay down your balances. Aim to pay the full amount before the due date, not just the minimum. You can also make multiple payments within a billing cycle; paying down a large purchase before your statement is generated can prevent a temporary spike in your reported utilisation. Another effective strategy is to request a credit limit increase on your existing cards. A higher limit automatically lowers your ratio, assuming your spending stays the same. However, only do this if you can manage the higher limit responsibly.
