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Here Is How Your Credit Utilisation Ratio Can Affect Your CIBIL Score

Author: Aditya Sehgal
by Aditya Sehgal
Posted: Jan 06, 2019
cibil score

Your CIBIL score is one of the vital parameters that the lender looks at while processing your loan application. It mirrors your creditworthiness and is an important determinant of your loan repayment capacity. Therefore, it is crucial that you have a good CIBIL score.

There are various ways through which you can maintain a positive CIBIL score. Keeping a low credit utilisation ratio is one such way.

Let’s know what is credit utilization ratio and how can it affect your CIBIL score?

What is Credit Utilization Ratio?

Credit utilisation ratio is the percentage of credit you have used out of the total credit limit available to you. For example, if your total credit limit is Rs.1,00,000 and you have used Rs.50,000 out of it, your credit utilisation ratio is 50%. Simply put, it is a measure of the debt amount you owe on revolving accounts like your credit card in relation to the total credit limit available to you.

You can calculate your credit utilisation ratio by dividing the total credit balances by the total credit limit on all cards.

The mathematical formula for calculating credit utilisation ratio is

Total balances on all credit cards / Total of credit limits on all cards) X 100

How Does Your Credit Utilisation Ratio Affect Your CIBIL score?

Your CIBIL score is a reflection of your creditworthiness. When your credit utilisation ratio is high, it means that you are using excessive credits every month or might be suffering from a cash crunch. Consequently, it indicates that you could face difficulty in paying your debts and so can default in the loan payments. Such situations might have a negative impact on your credit score.

Naturally, a lower credit utilisation ratio is considered good for your CIBIL score. Lenders advise maintaining a ratio of 30% for a positive CIBIL score.

If your CIBIL score is low, lowering your credit utilization ratio can help you improve it.

  1. Use more than one credit card so that your credit limit is distributed in multiple credit cards. When you keep the credit utilization ratio below 30% in all of them, it won’t affect your credit ratio but might fulfil your credit requirement.
  2. Do not max out your credit card balance and pay all the outstanding due as soon as possible.
  3. Ask your lender to increase your credit card limit. With an increase in credit card limit your ratio would drop down thereby improving your CIBIL ratio

As you know that your CIBIL score can affect your loan application approval you might want to know what is a good CIBIL score for availing a loan. The CIBIL score ranges between 300 -900 and a CIBIL score of 700-750 is considered ideal for availing a loan.

Now, when you know how to improve CIBIL score through maintaining a low credit utilisation ratio, you can easily apply for a loan at attractive features and affordable interest rate with Bajaj Finserv.

You can also avail pre-approved offers for personal loan, home loan, EMI finance on different products and other financial services. It simplifies the loan availing process and thereby saves time. You can improve credit score if your credit score is low.

About the Author

Aditya Sehgal is a blogger and loves to write on various niches. He is known for his in-depth knowledge on topics such as technology, finance, lifestyle, current trends etc. Being a passionate writer he also contributes his knowledge on various blogs

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Author: Aditya Sehgal

Aditya Sehgal


Member since: Sep 15, 2017
Published articles: 8

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