The Role of Credit Utilisation in Your Credit Score

Your credit score isn't just a number—it's a snapshot of your financial health and credibility. One of the lesser-known yet highly influential factors that shape this score is credit utilisation. Whether you're applying for a loan, a credit card, or even a rental agreement, a high credit utilisation can work against you silently.

Credit utilisation refers to the percentage of your credit limit that you’re currently using. It directly affects how lenders and credit bureaus perceive your repayment behaviour and financial discipline. If you're consistently maxing out your credit card limits—even if you're paying on time—it signals higher credit risk.

In this blog, we'll break down what credit utilisation means, why it matters, and how you can manage it smartly to protect and improve your credit score. Understanding your credit utilisation is the first step to gaining more control over your credit profile.

Credit Utilisation Ratio: The Key to a Healthy Credit Profile

Your credit utilisation ratio is a critical component that can either boost or damage your credit score, depending on how you manage it.

What Is Credit Utilisation Ratio?

Your credit utilisation ratio is calculated as:

Credit Utilisation Ratio (%) = (Total Credit Used ÷ Total Credit Limit) × 100

For example, if you have a total credit limit of ₹1,00,000 across all credit cards and you’ve used ₹30,000, your utilisation ratio is 30%.

Why Does It Matter?

A high credit utilisation ratio (typically above 30%) may indicate a dependence on credit or poor spending habits, which could reduce your CIBIL score. Conversely, a low utilisation rate signals responsible financial behaviour, improving your chances of loan approvals and lower interest rates.

5 Proven Impacts of CIBIL Score and Credit Cards

Your credit cards play a massive role in influencing your CIBIL score, and credit cards are closely tied to this usage ratio.

1. Credit Usage Drives 30% of Your Score

Credit utilisation is among the top components that credit bureaus assess. Using more than 50% of your credit limit consistently can lead to a drop in your credit score, even if you're making full payments.

2. Multiple Cards = Better Distribution

Having multiple credit cards can help improve your utilisation ratio. For instance, spreading ₹30,000 usage across 3 cards with ₹50,000 limit each means your overall utilisation is just 20%.

3. Consistent High Usage Lowers Score

Even if you pay your dues on time, high utilisation each month tells lenders that you might be overly reliant on credit.

4. Credit Limit Increases Help

When your card issuer increases your credit limit and your usage stays the same, your utilisation ratio automatically drops, benefiting your score.

5. Statement Cycle Matters

Paying your dues before the statement date—not just before the due date—ensures that the reported utilisation remains low when sent to credit bureaus.

Easy Steps for Lowering Credit Utilisation

Wondering how to keep your credit utilisation in check? Here are simple strategies to reduce it over time and build a stronger credit score.

Step 1: Pay Off Credit Cards Early

Don’t wait for the due date—pay before your billing cycle ends. This lowers the reported usage to the credit bureau.

Step 2: Ask for a Credit Limit Increase

If your income has increased or your payment history is solid, request a higher credit limit from your card provider. This lowers your utilisation without changing your spending habits.

Step 3: Distribute Purchases Across Cards

Avoid using a single credit card for all expenses. Split high-value purchases across multiple cards to keep individual card utilisation low.

Step 4: Set Alerts for Spending Thresholds

Use GoodScore’s credit payment add or bill payment add features to track and alert you when you cross a set usage percentage.

Step 5: Avoid Withdrawing Cash via Credit Card

Cash advances come with high fees and no interest-free period. Plus, they max out your available limit quickly, hurting your utilisation ratio.

Maintaining Low Credit Usage: Long-Term Benefits

Keeping your credit utilisation consistently low (below 30%) is one of the most guaranteed ways to maintain credit health. Here’s why:

Long-Term Perks:

• Improved Loan Eligibility: Lenders view you as low-risk, increasing the chances of approvals.
• Lower Interest Rates: A high credit score can help you negotiate better terms.
• Better Credit Limit Offers: Banks reward responsible usage with enhanced credit limits and rewards.
• Positive Credit Report Entries: Regular low utilisation is recorded as a good behaviour metric on your credit report.

Conclusion

Understanding and managing your credit utilisation can be the difference between an average and an excellent credit score. By keeping your credit card balances in check, distributing your spending smartly, and leveraging credit limit increases, you can maintain financial stability while boosting your creditworthiness.

Start small: Pay your EMIs on time, use GoodScore’s tools to track your spending and receive reminders, and aim to lower your usage month by month.

Check your credit report on GoodScore today and take the first step toward stronger financial health and a higher credit score. 

FAQs

1. How does credit utilisation affect my credit score in India?

A: Credit utilisation impacts around 30% of your credit score. High utilisation suggests financial strain and can lower your score, while low utilisation reflects responsible usage and boosts your creditworthiness.

2. What is a good credit utilisation ratio for a high credit score in India?

A: A credit utilisation ratio of 30% or below is considered healthy. Ideally, aim to keep it under 20% for the best impact on your credit score.

3. Can high credit utilisation lower my CIBIL score in India?

A: Yes, high credit utilisation (above 50%) can reduce your CIBIL score even if you’re paying bills on time. It indicates possible credit dependency or overextension.

4. How do I lower my credit utilisation ratio in India?

A: You can lower your credit utilisation ratio by paying off balances early, increasing your credit limit, spreading usage across multiple cards, and avoiding large transactions on a single card.

5. What is the ideal credit utilisation percentage for a good credit score in India?

A: The ideal percentage is under 30%. Staying between 10-20% is even better, as it reflects minimal reliance on borrowed funds and boosts your credit score faster.