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As we all know the role of CIBIL score in the acceptance and denial of loan application. Higher is the CIBIL score, better are your chances of gaining the approval from the lender for loans, if any. If the CIBIL score worsens, then there are increasing possibilities of your loan application getting rejected by the lender. However, you can boost your CIBIL score by managing your credit utilization. Now you must be wondering what credit utilization means. Credit utilization is the ratio of the overall spending on the credit card to the total approved limit. Suppose if the credit limit on your credit card is Rs 75,000 and the average billing comes to be Rs 40,000, then the utilization ratio comes out to be 53.33%. If you take another card with a limit of Rs 1,00,000 and the average billing on both remains Rs 40,000, the credit utilization will thus reduce to 43.75%. Spreading the spends diligently over different credit cards can manage your credit utilization and thus boost your CIBIL score. Here are some of the tips that you can use to manage your credit utilization.
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Manage your spends via credit cards
The best way to maintain an effective credit utilization is by saying no to unnecessary spending via credit card. And if you have multiple credit cards, then you better spread the spending over them in a meticulous manner so that it will help you lower the credit utilization on those cards.
Higher credit limit
Each credit card is given a certain credit limit during the time of the application. The credit limit is dependent on factors like your income, repayment capacity and others. More the income level and the repayment capacity, more will be the credit limit on the credit card. After you get the credit card, make sure you spend wisely and pay your credit card bills on time. Banks review your credit card bill payment history from time to time. And if your payment history remains good, then your lender can raise the credit limit on your credit card after a certain period. With higher credit limit and controlled spending, you can improve your credit utilization significantly.
Smarter scheduling of payments
Smartly scheduling your credit card payments on a monthly basis can lead to reduction in the credit utilization. If you feel you have used the card too much in a particular cycle, then you should make the payment earlier than the due date to reduce the interest portion and the consumption of the credit limit. Also, you should avoid carrying forward the balance to the next billing cycle by making payment of the entire amount for each cycle on or before due date. The practice of carrying forward the balances of previous cycle leads to unnecessary consumption of your card’s credit limit.
Thus, it is clear that you can lower your credit utilization rate on credit card by spending wisely via the cashless instrument. Keep an eye on the monthly spends and don’t let them go out of your hand to pay the credit card bills on time and boost your CIBIL score.