How does one keep blood sugar in check? Or, for that matter how does one maintain a clean bill of health? Timely visits to the doctor, pathological examinations and remedial therapies, right? Let’s draw the key elements from the three events. Time, check-ups, and remedies! That’s exactly what’s needed in any kind of management – financial or otherwise. When you understand the strong correlation between your Credit health and credit utilization ratio, you would be motivated to ensure that you hover around the optimum utilization percentage. Let’s find out how you can achieve that. But, first let’s dissect the meaning of this ratio.
How is the credit utilization ratio calculated? If your card limit is ‘x’, and your credit spend for the month is ‘y’, your credit utilization is ‘(y/x) * 100’. Let’s put some real figures into it. The Credit Card limit is Rs. 50,000 and your outstanding for is Rs. 20,000 on this card. If you were to check your credit card status for the month, you’d find your credit utilization rate to be 40%. Is this the ideal credit utilization ratio? We shall ponder upon this a little later. For now the big question is: Does the ratio apply to only one card or all the cards that you hold. Well, the utilization will be calculated in aggregate terms. In takes into account the amount you charge to all your cards for the month to the total credit limit of all the cards.
Now, let’s find out the correlation between this ratio and your CIBIL report.
Credit utilization constitutes 30% of your credit report. That’s a huge chunk. It calls for some serious initiative to keep that utilization in check. Does that mean you’d drive yourself to a frenzy every time you cross the threshold? No, not really. There are proactive and reactive ways to manage this slippery threshold. Let’s begin with the proactive means, first.
Be your own watchdog
There is no harm in checking into your credit card accounts on a weekly or bi weekly basis to see how much of your credit you have utilized. Time is of essence here. If you are not sure what your account looks like, log in to your account and look at the utilization percentage or graph. Do some aggregate calculation and ensure you are within your limits. If you find yourself exceeding the utilization ratio on one card, you may want to use the other cards for the rest of the billing cycle. Basically, build an alert system for yourself and stay on top of your account status. When you know you have crossed the threshold, spread your charges to other cards.
Make strategic payments
So, you check your accounts and you know that for whatever reasons you couldn’t hold onto the threshold. You feel like you cannot avoid a situation where you might have to look at how to improve CIBIL score because the utilization ratio has shot beyond your control. Don’t hit the panic button, yet! Make part payments before the end of the billing cycle. This will pull back your utilization rate. However, ensure to pay off all your dues before the due date. Carrying forward debt is bad for your financial management and score. Again, here you assess the situation and take a remedial call to stay on top of the game.
Try a limit boost
If you keep noticing a pattern of reaching the limit every month on the card(s) you have and obsess about how to avoid a hit on your CIBIL rating, then it must be time for you to provide for your credit neediness. One way is to make another credit card application. Well, then you’d have to showcase your CIBIL report yet again. And if that is not in good shape, then you could be stuck at a dead end. Instead, you may want to ask one of your current credit card companies to raise your limit. If the increase request can be substantiated by proof of income raise or even a sincere plea of an effort to boost your utilization ratio, you may manage to keep that all important ratio in check after all.
There you have it – time, assessment and smart remedial moves to help you keep a good score.
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