What is Credit Card Utilization Ratio (CUR)?
Your Credit Card Utilization Ratio (CUR) is the percentage of your total available credit that you are currently using. It's calculated for each card individually and also as an overall ratio across all your cards.
CUR = (Total Outstanding Balance on Card / Total Credit Limit on Card) × 100
Example: If you have a credit card with a ₹1,00,000 limit and your current outstanding balance is ₹20,000, your CUR for that card is (20,000 / 1,00,000) × 100 = 20%.
How CUR Impacts Your CIBIL (Credit) Score
Credit utilization is a significant factor in determining your CIBIL score (typically accounting for around 30% of the score's weight).
- Low Utilization (Generally under 30%): This is viewed positively by lenders. It suggests you are not overly reliant on credit and manage your finances responsibly. This can lead to a higher credit score.
- High Utilization (Above 30-50%): This can negatively impact your credit score. Lenders might see this as a sign of financial stress or that you are overextended, making you a higher-risk borrower.
- Maxed-out Cards: Consistently using the full limit on your cards is a major red flag and can severely lower your score.
A good credit score is crucial for obtaining favorable terms on loans (home, car, personal) and even for things like renting an apartment or getting certain jobs.
The 30% Rule: A Healthy Benchmark
Financial experts generally recommend keeping your credit utilization ratio below 30% on each card and overall. So, if your total credit limit across all cards is ₹5,00,000, you should aim to keep your total outstanding balance below ₹1,50,000.
Even lower (e.g., under 10%) is often better for maximizing your credit score.
Pro Tip
Benefits of Full Payment vs. Minimum Due Trap
- Paying in Full:
- Avoids interest charges completely (which can be very high on credit cards, often 30-48% annually).
- Helps maintain a good credit history and low utilization.
- Demonstrates responsible credit management.
- Paying Only the Minimum Due:
- Leads to accumulating high-interest debt quickly.
- Can take years (or even decades) to pay off the balance.
- Keeps your credit utilization high, negatively impacting your score.
- The "minimum due trap" is how credit card companies make significant profits from interest.
- Converting to EMIs:
While converting large purchases to EMIs can make payments manageable and often comes with lower interest than revolving credit, these EMIs still contribute to your overall credit utilization and debt burden. Use this option judiciously.
Always aim to pay your credit card bill in full by the due date. If you cannot, pay as much as possible above the minimum due.
Key Strategies for Healthy Utilization
- Regularly monitor your credit utilization on each card.
- Set up payment reminders to never miss a due date.
- If your utilization is high, try to pay down balances.
- Consider requesting a credit limit increase on existing cards (if you can manage it responsibly), which can lower your CUR if your spending remains the same.
- Avoid applying for too many credit cards at once.