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How Credit Card Utilisation Impacts on Your Credit Score?

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Credit cards offer the freedom of using the provided credit limit to pay for various purchases. But high credit utilisation has its own consequences, sometimes not as savoury. Credit cardholders need to be careful while utilising their credit limit to make big payments, or they may end up lowering their credit score.

Along with various other benefits, credit cards enable card members to maintain a good credit score. All they need to do is pay their credit card bills on time while not missing out on any instalments or utilising the entire credit limit. 

Your credit card utilisation and repayment history significantly impact your credit scores. Therefore, you must learn to manage the same more efficiently. 

What is Credit Card Utilisation?

Credit card utilisation is a ratio of credit you have already used to the total available credit limit. The term defines the credit amount you owe to the credit card lender. Secondary to the repayment history, credit card utilisation is another major factor that impacts your credit scores. It is essential to maintain a healthy ratio between your expenses and payments. 

Card members with a good credit score, i.e. above 750, usually use only 10 per cent of their total available credit limit. The rule of thumb is to keep it below 30 per cent. Keeping the credit utilisation ratio low helps you avoid hurting your credit score. 

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How is the Credit Card Utilisation Ratio Calculated?

The credit card utilisation ratio can easily be calculated by simply dividing your credit card balance by your credit limit and multiplying it by 100. The lower the credit card utilisation ratio stands, the better it is for your credit report. 

Here are the five major factors that have a huge influence on your credit report.

  • Payment history
  • Credit utilization/Level of debt
  • Mix of credit
  • Credit inquiries
  • The age of credit

The financial institutions calculate your credit score based on the latest details updated on your profile. The credit report changes every month depending upon credit card billing cycles. Your credit score shows the most recent changes to your credit limit and outstanding balances.

How to Manage Your Credit Card Utilisation Rate?

You need to keep a check on your monthly financial activities to maintain a good credit card utilisation rate. To track your credit card utilisation, you can set up balance alerts, spending limits, and more. Here is what you can do to lower down your credit card utilisation ratio.

  1. Make Timely Bill Payments
  2. Do Not Miss Out on Your EMIs
  3. Use Multiple Credit Cards
  4. Get Your Credit Limit Increased
  5. Clear Out All Your Debts

Make Timely Bill Payments

This is the first thing that you can add to your schedule, making timely bill payments. To manage a good credit score, you must pay all your credit card bills on time. Some people even set up automatic payments in their savings bank accounts so that they do not miss out on any credit card bill payment and lower their credit score. 

Do Not Miss Out on Your EMIs

In case you have active loans, make sure you do not miss out on any EMIs. Missing out on your instalments can also increase the loan amount by adding more interest to it. You can also set up automatic payments services to make on-time repayments of your loans. To activate this service, you can simply login to the bank’s online or mobile banking portal and set up standing instructions.

Use Multiple Credit Cards

You can also use multiple credit cards to spread out your expenses. This helps you utilise a smaller portion of your credit limit and maintain a good credit score. If you do not have multiple credit cards, you can apply for them on our website. Make sure you go through all the benefits and features of the chosen credit card and then only apply for the same. Banks and other financial institutions in the UAE offer credit cards with a wide range of benefits based on the financial needs of their target audience. Make sure you analyse your needs and choose a credit card accordingly.

Get Your Credit Limit Increased

Getting your credit limit increased can also help you in lowering your credit card utilisation ratio. This way, you can keep using your credit card while not cutting out on your expenses. You can place a request to increase your credit limit in just a few clicks by logging into the lenders’ online banking portal. All you need to do is go to the requests section and provide your details such as your name, address, registered mobile number, monthly income, and more.

Clear Out All Your Debts

This is one of the easy ways to lower your credit card utilisation ratio. You can simply clear out all your credit card debts if you have enough funds. And if not, you can also use the balance transfer services to transfer your multiple credit cards outstanding to one credit card and convert the same into monthly installments for easy repayments. But not all credit cards offer these services. You can contact your credit card provider to check if they offer a balance transfer facility on your credit card.

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Final Thoughts

Just like getting a new credit card can increase your credit limit, closing a one can reduce it. So even if you are not using a credit card, you must not close it. Make sure you keep all your credit cards active and spend a little from each card to maintain a good credit score.

If you want to get another credit card, you can visit our website and explore your options. And not just that! You can also call our help and support line to connect with our financial experts and get to know about the best available credit card options with detailed benefits and features. Our professionals will not only analyse your financial needs and help you choose the best fit credit card option but they will also take you through the entire application process to get one delivered at your doorstep without any hassle.

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