How Does Credit Card Use Affect Your Credit Score?
Credit cards allow you to use the allocated credit limit to pay for a variety of items. High credit utilization, on the other hand, has its own set of effects, which aren’t always as pleasant. Credit cardholders must exercise caution while using their credit limit to make large payments or risk damaging their credit score.
Credit cards, among other things, allow cardholders to keep a decent credit score. All they have to do is pay their credit card bills on time, without missing any payments or using up their entire credit limit.
Your credit card usage and payback history have a big impact on your credit scores. As a result, you must learn to control it more effectively.
What is Credit Card Utilization?
Credit card utilization is the ratio of credit used to total available credit limit. The phrase refers to the amount of credit you owe to the credit card company. Credit card usage, in addition to payback history, is a crucial element influencing your credit scores. It is critical to keep a good balance between your expenses and payments.
Cardholders with a strong credit score, i.e., above 750, typically use less than 10% of their total available credit limit. The general rule is to keep it around 30%. Maintaining a low credit use percentage helps you avoid harming your credit score.
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. You can check your credit card eligibility here.
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.
- Make Timely Bill Payments
- Do Not Miss Out on Your EMIs
- Use Multiple Credit Cards
- Get Your Credit Limit Increased
- 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 utilization 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 utilization 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.
Just as opening a new credit card can increase your credit limit, so can cancelling one. You must not close a credit card even if you are not using it. Maintain a decent credit score by keeping all of your credit cards active and spending a small amount on each card.
If you wish to get a new best credit card, you can go to our website and look into your alternatives. Not only that, but You can also phone our help and support line to speak with one of our financial professionals about the finest available credit card options, along with specific advantages and features.