What is credit utilisation ratio? How to build good score?
Your credit utilisation ratio needs to be low. If you use minimal credit, then you get a high score. Credit Bureaus don’t bother about whether you have a high credit limit or a low one. They take into account how much of that credit you use. In other words, they are interested in your credit utilisation ratio. This ratio is the amount of credit you use when compared to the credit available to you.
For instance, if you have a credit limit of Rs. 75,000 and your Credit Card balance is Rs.40,000, your credit utilisation ratio will be 53%, which is considered high. Typically, experts recommend that you maintain a ratio of less than 25%. Now, if you can bring this down to zero, then your Credit Score will improve drastically.
Paying off your Credit Card balance is one of the simplest ways to increase your Credit Score quickly. Your payment history makes up 35% of your Credit Score (that’s the biggest one!). Under this head, the way you use credit plays a major part. Even if you are unable able to pay the entire balance, try and pay off at least 20-30% and your Credit Score is sure to improve immediately. Here’s a tip. Split up your Credit Card bill and pay it twice a month. That way credit bureaus will know that you have every intention of paying your Credit Card dues and your credit utilisation ratio also goes down.
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