Credit Card Alert: High Usage Can Impact Your Credit Score

G GOWTHAM
Many credit card users assume that paying their bills on time is enough to maintain a healthy credit score. However, high credit utilization—even with timely payments—can negatively affect your credit rating. Understanding this factor is crucial for financial health.

What Is Credit Utilization?

Credit utilization refers to the percentage of your available credit that you are using at any given time. For example:

  • If your credit limit is ₹1,00,000 and you spend ₹80,000, your credit utilization is 80%.
  • Experts generally recommend keeping utilization below 30% to maintain a strong credit profile.
High utilization signals to lenders that you might be over-reliant on credit, which can lower your credit score.

Why High Usage Hurts Your Credit Score

Even if you pay off your credit card bills on time, high usage can hurt your score because:

Perceived Risk: Lenders may see high utilization as a sign of financial stress.

Credit Score Algorithms: Most credit scoring models weigh credit utilization heavily when calculating scores.

Impact on Loan Approvals: High utilization can reduce your chances of securing personal loans, home loans, or additional credit cards.

Tips to Maintain Healthy Credit Utilization

Keep Balances Low: Avoid spending more than 30% of your credit limit at any time.

Make Multiple Payments: If your balance is high, consider paying off the card multiple times a month.

Increase Credit Limit: Requesting a higher limit (without increasing spending) can reduce utilization percentage.

Monitor Your Credit Score: Regularly check your credit report to track how utilization affects your score.

Avoid Closing Old Cards: Long-standing accounts improve your credit history length, which positively affects your score.

Key Takeaway

Paying your credit card bills on time is important, but how much you use relative to your credit limit is equally critical. By keeping utilization low and managing balances smartly, you can protect your credit score and maintain financial flexibility.

 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.

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