Credit Utilisation Ratio Destroying Your CIBIL Score: How to Fix High Usage Without Closing Cards

If you want to fix a high Credit Utilisation Ratio (CUR) without closing your cards, consider either increasing your credit limit or paying down your outstanding balance. Closing your cards reduces your overall available credit, leading to an increase in your credit utilisation ratio; this further damages your CIBIL score since the credit utilization rate accounts for about 30% of your score calculation. Read on to understand exactly how you can lower your credit usage and safeguard your financial health.

6 Effective Ways to Lower Your Credit Utilisation Ratio

You can use the following methods to effectively fix your high credit usage and achieve a low credit utilization ratio while improving your credit score.

Control Your Card Usage in Advance

If your high Credit Utilisation Ratio (CUR) is because of unchecked spending habits, you should take control of your credit card balances in advance by controlling when and how much you spend. Set up balance alerts for your bank account to be notified when you are nearing a 25% utilisation threshold. Work on a monthly spending plan and set up a credit card utilisation limit to practice better financial discipline.

For big or pre-planned purchases, you can pay with your card beforehand to avoid a balance spike. Another method is to time your large purchases carefully, waiting until your statement closes to make major purchases. However, keep in mind that with reporting happening every 15 days, the window to pay them down is much smaller.

Make Mid-Cycle Payments 

Your credit card issuer reports your balance to CIBIL after your statement is issued, and based on your statement balance, not your current balance. By making a payment before the statement closing date, you can bring down the reported outstanding balance. This can immediately improve your credit utilization for that month, even if you keep using the card regularly. 

Also Read: How to Manage Your Credit Card Bills Effectively?

Pay Off Your Debt 

Paying off the balance on your credit cards is an effective way to reduce your credit utilization ratio while working towards improved financial health. If you have several credit cards, it's advisable to start with the cards that have the highest utilisation (that is, those closest to the limit). 

Try to Get an Increased Credit Limit 

Increasing your credit limit is a simple way to lower your credit utilisation without changing your spending. For example, if your credit limit goes from ₹50,000 to ₹1,00,000 and you usually spend ₹25,000, your utilisation drops from 50% to 25%.

Contact your credit card provider to request a higher credit limit, especially if you’ve had a solid payment history for 6-12 months. A rise in your monthly income can also strengthen your case.

Just remember, this works only if you maintain your current spending and don’t treat the higher credit limit as permission to spend more.

Also Read: 13 Things That Are Ruining Your Credit Score

Distribute Spending Across Cards

Rather than using one credit card to its limit, try to spend on different cards you have instead. This way, you can maintain a low credit utilisation ratio for each individual credit card. Credit bureaus consider both your overall CUR and utilisation per individual card. So, using multiple cards but keeping them all under 30% is much better than maxing out one or two cards while others lie unused.

Take a Personal Loan for Debt Consolidation

If your credit cards are carrying high-interest balances, think about paying them off together with the help of a loan for debt consolidation. This immediately resets your credit card usage to zero, significantly easing debt management as the revolving credit is converted into a simpler, fixed-term EMI. You could also benefit from a lower interest rate since personal loans typically have lower interest rates than credit cards (around 10-18% vs 20-45% annually). 

Also Read: Credit Score Improvement Through Personal Loan Management

To Conclude

CIBIL recommends maintaining a credit utilization ratio below 30% to have a strong score. By strategically paying down balances or increasing your available credit limit, you can lower your high credit usage. 

If high-interest credit card debt is a challenge, a Personal Loan from Poonawalla Fincorp can combine your debts into one easy EMI, helping you regain control of your finances.

FAQs

What is a good credit utilization ratio in India?

A good credit utilization ratio is generally considered to be up to 30% of your total credit limit. A ratio lower than this signifies that you are not heavily dependent on credit and that you are managing your money well.

How quickly will my CIBIL score improve after lowering my credit utilization?

Your CIBIL score can get a boost in approximately 15-30 days post lowering your credit utilisation, contributing to a higher credit score. This period is usually when the lenders report your new, lower balance to the credit bureaus.

Will requesting a credit limit increase affect your credit score?

When you ask for a credit limit increase, it might attract a hard inquiry on your credit report, which could cause your score to take a small and temporary dip. However, the long-term advantage of having a lower utilisation ratio is normally more than offset by this small, short-term effect.

Is it better to have zero credit utilization?

No, it is usually not better to have a zero-credit utilization. Lenders would like to see the history of responsible credit usage. A very low ratio, between 1% and 10%, is often more suitable for your score than a 0% ratio.

What is the formula for the credit utilisation ratio?

The credit utilisation ratio is calculated as:

(Total Outstanding Balances ÷ Total Credit Limit) x 100. This shows the percentage of your available credit that you are using.

What is credit utilisation?

Credit utilization refers to the amount of your available credit you're using, expressed as a percentage. It impacts your credit score and is essential for responsible credit management. 

What is a credit card 30% utilisation?

A 30% credit card utilisation means that you're using 30% of your total credit limit. Keeping your credit utilisation ratio below 30% is recommended for a healthy credit score.

Is a credit card utilization of 70% good?

A credit utilisation of 70% of your total available credit is considered high. and may negatively affect your credit score. Lowering your credit utilisation ratio to under 30% is advised for better credit health.