What Is Credit Utilisation Ratio? A Complete Guide to Its Impact on Credit Score
Your credit score plays a major role in determining your financial freedom, be it qualifying for a loan, getting better interest rates, or increasing your credit limit. But one factor that often goes unnoticed is your credit utilisation ratio. Even if you make timely bill payments and manage multiple accounts responsibly, a high credit utilisation ratio can still hurt your credit score.
So, what exactly is this ratio? Why does it matter so much to lenders? And how can you use it to your advantage?
Credit Utilisation Explained: Why It Matters More Than You Think
Many people believe credit scores only depend on repayment history. But credit usage patterns are equally important—and that’s where your credit limit usage or credit utilisation comes in.
What Is Credit Utilisation Ratio?
Your credit utilisation ratio refers to the percentage of your total available credit that you're currently using. It is calculated using this simple formula:
Credit Utilisation Ratio (%) = (Total Outstanding Balance ÷ Total Credit Limit) x 100
Example:
If your credit card limit is ₹1,00,000 and your current outstanding balance is ₹30,000, your credit utilisation ratio is 30%.
A lower ratio indicates you're managing your credit responsibly, while a higher ratio may signal financial stress or overspending.
Ideal Credit Utilisation: What’s the Magic Number?
Financial experts and credit bureaus agree that ideal credit utilisation should be kept under 30% of your total credit limit.
Why 30% Is Considered Best:
- Keeps your credit score stable or rising
- Indicates low dependency on credit
- Shows lenders you are financially disciplined
If you consistently use more than 50–60% of your credit limit, it could raise red flags—even if you’re making all your payments on time.
5 Proven Ways to Maintain a Healthy Credit Utilisation Ratio
Keeping your credit utilisation low doesn’t mean avoiding credit altogether. It simply means using credit wisely.
1. Track Your Spending Regularly
- Monitor your credit card usage weekly.
- Use budgeting tools or apps to avoid overspending.
2. Increase Your Credit Limit Strategically
- Request a limit increase on your credit card.
- A higher limit can instantly lower your utilisation ratio, provided you don’t increase your spending.
3. Pay Bills Multiple Times a Month
- Split your credit card bill payments to lower the balance before the due date.
- This ensures that your reported balance stays low on your credit report.
4. Distribute Expenses Across Multiple Cards
- If you have multiple credit cards, avoid maxing out one card.
- Use all cards moderately to balance out usage.
5. Use Credit Payment Add Features
- Tools like credit payment and bill payment on GoodScore help automate repayments and control balance spikes.
The Impact of High Credit Utilisation on Your Credit Score
A consistently high credit utilisation ratio can:
- Reduce your credit score by up to 50–70 points
- Signal higher credit risk to lenders
- Impact loan approval chances even if you pay loan EMI on time
- Lead to higher interest rates and lower credit limits
That’s why it’s important to monitor your credit activity using services that provide real-time alerts, like the credit report on GoodScore.
Conclusion
Your credit utilisation ratio is one of the most important yet underestimated components of your credit score. Keeping it under 30%, paying bills on time, and using smart tools can dramatically improve your financial profile.
Check your credit report on GoodScore and use our tools to manage your credit utilisation, bill payments, and EMIs all in one place. Download the app to start your journey toward a better credit score today.
FAQs
1. How does the credit utilisation ratio affect the credit score?
A: A high credit utilisation ratio signals overdependence on credit and can reduce your credit score, even if payments are on time. Keeping it below 30% is ideal for maintaining a healthy score.
2. What is the ideal credit utilisation ratio in India?
A: Most credit bureaus in India recommend keeping your credit utilisation below 30%. Staying within this limit helps demonstrate financial discipline and boosts your creditworthiness.
3. What are some tips to maintain low credit utilisation?
A: Here are some effective tips to maintain low credit utilisation:
- Track expenses weekly
- Request higher credit limits
- Pay bills multiple times a month
- Use credit payment tools like GoodScore’s bill alerts and auto-pay features
4. How to calculate credit utilisation percentage?
A: Divide your total outstanding balance by your total credit limit and multiply by 100. Example: ₹25,000 (balance) ÷ ₹1,00,000 (limit) x 100 = 25%
5. What is the impact of high credit utilisation on loans?
A: High credit usage can lower your score, affecting your chances of getting approved for loans or credit cards. It may also result in higher interest rates and reduced credit limits from lenders.
