Credit Utilisation: Impact on Your Credit Score 

Did you happen to use the CIBIL score app to perform a free CIBIL score check and find it to be low?  Credit Utilisation is a factor that causes a significant impact on credit score. But how does it do so? Let us discover this through the article. 

Understanding Credit Utilisation Ratio 

The Credit Utilisation Ratio is the ratio of total credit to total debt on revolving credit accounts. Mathematically expressed, it is represented as 

Credit Utilisation Ratio = Your total debtYour total available credit

In general, this ratio is represented as a percentage. A high Credit Utilisation Ratio indicates spending more of the available balance in your account, while a low Credit Utilisation Ratio refers to low expenditure of the available amount. It indicates more value of money by the individual compared to the previous case. 

Understanding this with an example, a credit Utilisation Ratio of 15 percent indicates that your usage is 15 percent of total available credit. So, in the case of a balance of INR 10,000, the credit utilization ratio of 15 percent will indicate a balance of INR 1500. 

The stated case covered a single credit card. In holding multiple credit cards, the credit utilization ratio is the amount of debt on all the cards. The available credit should be kept high with low debts. 

How Credit Score Affected by Credit Utilisation Ratio

Five important factors impact the credit score through a set percentage. The list goes as follows: 

  • New credit: 10 per cent 
  • Credit mix: 10 per cent 
  • Length of credit history: 15 percent 
  • Credit Utilisation: 30 per cent 
  • Payment history: 35 per cent 

The list indicates the second-highest impact of credit utilization on credit scores with 30 percent. Based on the impact, the credit experts suggest keeping the credit utilization below 30 percent. It indicates that with INR 10,000 credits, the maximum outstanding balance should be INR 3,000. 

The expert-guided higher expenditure is permissible only in certain circumstances where you can repay the credit within the grace period. It further implies paying back without charged interest imposed on your balance. The idea is to avoid the scenario of long-term debt and revolving credit. 

Furthermore, remember the time of updating the balance information by the credit card company. Generally, the updates are done together at the end of the billing cycle. Therefore, the impact of payment on your credit score tends to take a few weeks before showing up on your credit report. 

Calculation of Credit Utilisation Ratio

Here is a stepwise method guiding you to calculate the credit utilization ratio. 

Step 1: Add all the outstanding balances you have. A single credit card holder will come up with one value, while multiple credit card holders must check each balance. Use the CIBIL score app to perform a free CIBIL score check.

Step 2: Add the credit limits of each credit card if you own multiple credit cards. 

Step 3: Divide the values followed by multiplication with 100. The result will be a percentage amount. 

Converting the steps into the formula, here is an alternative calculation method. 

Credit Utilisation Ratio = Total outstanding on all credit cards total credit limit 100

Factors that can Lower Credit Utilisation Ratio

Find below state the different factors that can reduce your credit utilization ratio: 

  • Spend Within The Limit

Expenditure below 30% is generally recommended. An increase in the expenditure should be balanced with other credit cards. Avoid using the different credit cards until you clear the remaining balance. Alternatively, you can use the lowest possible amount if needed urgently. Perform calculations to remain updated with the credit utilization ratio. 

  • Pay Off Purchases Before Billing

Strategically using the credit card to use the rewards is an efficient method to use the benefits of a credit card. But ensure that the expenditures are paid back as soon as possible. The delay or procrastination should not reach beyond the billing cycle to end up in debt. Use your credit card like a debit card to lower credit usage and earn more rewards. 

  • Keep Credit Accounts Open

Keeping the old accounts open is a beneficial deal. You have a higher credit limit when you have multiple credits. Closing them will decrease the credit limit and increase the utilization percentage, thus impacting the threshold expenditure. Try to perform a minimal activity to keep the cards active. 

  • Track The Expenses

This automatically informs about the credit limit used, the remaining credit, and the balance. The judgment for the ability to pay and further use the credit limit will be easily done once the goals and one’s limitations are clear. 


The Credit Utilisation Ratio has a 30 percent impact on credit scores. Efficiently using the available credits will benefit the individual in maintaining a credit score. Individuals with single or multiple credit cards should constantly check their credit utilization ratio to remain updated and take effective measures. Practicing according to the above guidelines helps maintain the ratio and credit score. Keep tabs by using the CIBIL score app to have your free CIBIL  score checked. 

Frequently Asked Questions

Q1. What is the 15/3 credit card rule? 

Ans. The 15/3 credit rule requires two payments. The first one is fifteen days before the statement’s due date, and the second three days before the credit card’s due date. 

Q2. When is the credit utilization ratio calculated? 

Ans. Credit card companies update the credit utilization ratio monthly to the credit bureau. 

Q3. What should be the credit card usage amount? 

Ans. The credit card usage should remain zero, meaning paying off the debts before the billing cycle. However, up to 30% is allowed, according to experts. 

Q4. What is the range of credit scores? 

Ans. The range of credit scores is between 300 to 850. 

Q5. Which is a good credit score? 

Ans. A good credit score is generally considered to be above 700.


Related Articles

Leave a Reply

Back to top button