I read somewhere about credit utilization ratio and was just curious to know more about it. How will it impact my credit score/credit profile? And what is ideal credit utilization ratio?
Credit Utilization Ratio is expressed in percentage terms, it is the percentage of your total credit used from the total credit available to you. It is recommended to keep your credit utilization lower than 30% as it will help you to increase credit score, keeping your credit utilization high will decrease your credit score low.
To calculate credit utilization ratio:
Divide total outstanding debt by total credit limit.
Total Outstanding Debt/Total Credit limit
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I once asked a bank representative about this, and he advised me to keep credit utilization ratio as low as possible ideally below 30% of your total credit limit . High credit utilization ratio, can negatively impact your credit score as it signals that you over extend your credit limit while lower credit utilization ratio can positively impact your credit score.
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to keep things simple always only use 30% of your limit as increasing it may reduce the score, also keep a healthy mix of credit like loans and Credit cards which increases your overall limit and keep the spends in the 30% range
Credit utilization ratio is simply how much of your total credit limit you’re using. For example, if your total card limit is ₹1,00,000 and you’ve spent ₹40,000, your utilization is 40 percent. A high utilization signals higher risk to lenders and can drag your credit score down, especially if it stays high for long. Ideally you should keep it under 30 percent of your overall limit. Staying low shows you manage credit well and helps improve or maintain a good score.
i think it’s recommended to keep your credit utilization lower than 30% as it will help you to increase credit score, rest dont worry