The use of credit cards is increasing in the country. People from small to big cities are using credit cards to manage their expenses. If you also use a credit card, then you need to know whether using the entire credit limit every month affects your credit score or CIBIL score.

Even though you have been given a limit to use the credit card up to a fixed limit, which you can use completely, you should not do this. This can hurt your credit score or CIBIL score. This happens due to the high credit utilization ratio (CUR). Let us know what is credit utilization ratio.

What is the credit utilization ratio?

Your credit score depends on many factors, including the credit utilization ratio. The credit utilization ratio is a percentage that shows how much of your credit card's available limit you are using.

Formula to calculate credit utilization ratio

Credit utilization ratio = (credit limit used/total credit limit) × 100

Suppose you have a credit card with a limit of Rs 2,00,000 and you spend Rs 80,000 from it. In such a case, your credit utilization ratio will be 40 percent.

If your credit utilization ratio is more than 30 percent, then your credit score or CIBIL score may decrease. Using 100 percent of the limit may make banks and financial institutions consider you credit-hungry. If you want to improve your credit score, try to keep the credit utilization ratio below 30 percent.

Disclaimer: This content has been sourced and edited from News 18 hindi.