Your Credit Utilization Ratio (CUR) is a key factor in your CIBIL score, measuring how much of your available credit you are using. Understanding and managing this percentage is crucial for your financial health, as a high ratio can lower your score even if you pay all your bills on time.
What Exactly is the Credit Utilization Ratio?
The Credit Utilization Ratio (CUR) is a percentage that shows how much of your total revolving credit limit you are currently using. Revolving credit mainly refers to accounts like credit cards and overdraft facilities where you can borrow, repay, and borrow again up to a set limit.
Think of it like a water tank. Your total credit limit is the full capacity of the tank. The amount you’ve spent is the water currently in it. Your CUR is the percentage of the tank that’s full.
Lenders and credit bureaus like CIBIL use this ratio to assess your financial discipline. A consistently high CUR suggests that you might be over-reliant on credit and could struggle to pay back new loans.
How to Calculate Your Credit Utilization Ratio
Calculating your CUR is straightforward. You only need two numbers from your credit report: your total outstanding balance across all credit cards and your total credit limit across those same cards.
The CUR Formula
The formula is simple:
Credit Utilization Ratio (CUR) = (Total Outstanding Balance on All Cards ÷ Total Credit Limit on All Cards) × 100
A Simple Worked Example
Let’s say you have two credit cards:
- Card 1: A balance of ₹20,000 on a limit of ₹50,000.
- Card 2: A balance of ₹30,000 on a limit of ₹1,00,000.
Here’s how to calculate your overall CUR:
- Add up your total balances: ₹20,000 + ₹30,000 = ₹50,000
- Add up your total credit limits: ₹50,000 + ₹1,00,000 = ₹1,50,000
- Apply the formula: (₹50,000 ÷ ₹1,50,000) × 100 = 33.3%
So, your overall credit utilization ratio is 33.3%.
Why Your Credit Utilization Ratio Matters for Your CIBIL Score
Your CUR is a major component of your CIBIL score calculation, accounting for roughly 25-30% of it. Only your repayment history carries more weight.
A low CUR tells lenders that you manage your finances responsibly without relying too heavily on debt. This makes you a lower-risk borrower. On the other hand, a high CUR (often called being “maxed out”) can signal financial stress, making lenders hesitant to approve new credit, whether it’s another card or a large loan.
A Real-World Cautionary Story:
Let’s look at a quick story. Priya had three credit cards with a total limit of ₹2,00,000. She used them for a family wedding, running up a total balance of ₹1,80,000. Even though she never missed a payment, her CIBIL score dropped by nearly 40 points. Why? Her credit utilization shot up to 90%, making her look “credit hungry” to the banks. She could have avoided this by planning her expenses or requesting a temporary limit increase beforehand.
What is a Good Credit Utilization Ratio in India?
While there’s no magic number, experts and lenders generally agree on certain ranges. For instance, as per TransUnion CIBIL Limited, it is advisable to keep your CUR below 30% to maintain a healthy credit score.
| CUR Percentage | Interpretation | Lender’s View |
| Below 10% | Excellent | You use credit but are not dependent on it. Very low risk. |
| 10% – 30% | Good | You are a responsible credit user. Low risk. |
| 30% – 50% | Fair | Getting a bit high. Might raise a minor concern. |
| Above 50% | High Risk | You appear heavily reliant on credit. High risk. |
Interestingly, a 0% utilization isn’t ideal either. It doesn’t give lenders any information about how you handle credit. A ratio between 1% and 10% is often considered the sweet spot.
Individual Card Utilization vs. Overall Utilization: What’s the Difference?
Both matter. Credit bureaus look at your overall CUR (like the 33.3% in our example) and the utilization on each individual card.
In our example, Card 1 has a utilization of (20,000 / 50,000) = 40%, while Card 2 has a utilization of (30,000 / 1,00,000) = 30%.
Even if your overall CUR is low, having one card that is maxed out (say, at 95% utilization) can still negatively impact your score. It’s best to keep the balances low across all your cards.
Benefits of Maintaining a Good Credit Utilization Ratio
Keeping your CUR in check isn’t just about a good score. It comes with real-world advantages:
- Higher CIBIL Score: This is the most direct benefit, making you a more creditworthy individual.
- Easier Loan & Card Approvals: A low CUR increases your chances of being approved for home loans, car loans, and new credit cards.
- Better Interest Rates: Lenders often offer their best interest rates to low-risk applicants, saving you thousands of rupees over the life of a loan.
- Increased Financial Flexibility: With more available credit, you have a financial safety net for emergencies without damaging your credit profile.
- Higher Credit Limit Offers: Banks are more likely to proactively increase the credit limits for responsible users.
5 Proven Ways to Improve Your Credit Utilization Ratio
If your CUR is higher than you’d like, don’t worry. You can lower it quickly with these strategies.
- Pay Down Your Balances: This is the most effective method. Try to pay more than the minimum amount due. If you can, pay the full balance before the statement generation date.
- Request a Credit Limit Increase: Call your bank and ask for a higher credit limit on your existing card. If your limit increases but your spending stays the same, your CUR automatically drops. Be aware that this might trigger a hard inquiry on your report.
- Distribute Your Spending: Instead of putting one big purchase on a single card, split it across two or three cards to keep the individual utilization low.
- Don’t Close Old Credit Cards: An unused credit card with a ₹0 balance still contributes its credit limit to your overall available credit. Closing it would reduce your total limit and could increase your CUR.
- Use a Personal Loan for Big Purchases: For a large, planned expense, consider a personal loan instead of maxing out your credit card. Installment loans (like personal or home loans) are not part of your revolving credit utilization calculation.
Also, read:
Common Mistakes People Make with Their Credit Utilization
- Forgetting About the Statement Date: Most people focus on the payment due date. But card issuers usually report your balance to CIBIL on or around your statement date. A high balance on that day will be reported, even if you pay it off in full a week later.
- Closing Unused Cards: As mentioned, this hurts your total available credit and the average age of your credit accounts, both of which can lower your score.
- Only Making Minimum Payments: This keeps your balance high and makes you pay a lot more in interest, while your CUR remains stubbornly high.
- Ignoring Small Balances: A small balance of ₹500 on a card might seem insignificant, but it’s still a reported balance. It’s better to clear it completely.
Frequently Asked Questions About Credit Utilization
1. What is the 30% rule for credit utilization?
The 30% rule is a general guideline suggesting you should aim to use no more than 30% of your total available credit limit to maintain a healthy credit score.
2. Is a 0% credit utilization bad for my score?
It’s not “bad,” but it’s not optimal. A 0% CUR doesn’t show lenders how you manage debt. A low ratio (like 1-10%) is often better as it shows responsible, active use.
3. How quickly can I improve my credit utilization ratio?
Very quickly. Since issuers typically report your balance monthly, paying down your debt can reflect as an improved CUR and a higher score in as little as 30-45 days.
4. Does closing an old credit card affect my CUR?
Yes. Closing a card reduces your total available credit. If you carry balances on other cards, this action will immediately increase your overall CUR and can lower your score.
5. When do credit card companies report my balance to CIBIL?
They usually report your balance once a month, typically on or around your statement closing date. It is not the payment due date.
6. Does CUR apply to my personal loan or home loan?
No. Credit utilization specifically applies to revolving credit lines like credit cards and overdrafts. Term loans like personal, car, or home loans are installment credit and are treated differently in your credit score calculation.
7. Will increasing my credit limit hurt my score?
Requesting a limit increase may result in a “hard inquiry” from the bank, which can temporarily dip your score by a few points. However, the long-term benefit of a lower CUR from the higher limit usually outweighs this small, temporary drop.
8. Is it better to have a high balance on one card or small balances on many?
It is better to have small balances spread across several cards. Having one maxed-out card is a bigger red flag for lenders, even if your overall CUR is acceptable.
9. How is CUR different from the debt-to-income ratio?
CUR compares your credit card debt to your credit card limits. The Debt-to-Income (DTI) ratio compares your total monthly debt payments (including loans, EMIs, and card payments) to your monthly income. Lenders use both, but for different purposes.
10. What is a good CUR for getting a home loan?
For a major loan like a home loan, lenders want to see minimal risk. Aim to get your overall credit utilization ratio well below 30%, and ideally below 10%, before you apply.
Disclaimer:
This article is for educational purposes only and should not be considered financial advice. The information provided is intended to help you understand the concept of credit utilization. Please consult a qualified financial advisor or your lender for advice tailored to your specific situation. Your credit score is influenced by multiple factors, and your credit report and the lender’s policies are the final authority.
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