CIBIL Score Drop Despite Timely Payments? Here’s Why It Happens
Paying your credit card bills and EMIs on time is crucial for maintaining a good CIBIL score, but many people are surprised when their score drops even after timely payments. The reason often lies in a lesser-known factor: the Credit Utilization Ratio (CUR).1. What Is Credit Utilization Ratio?· Credit Utilization Ratio is the percentage of your available credit that you are currently using.· It is calculated as:Credit Utilization Ratio=Outstanding Credit Card BalanceTotal Credit Limit×100\text{Credit Utilization Ratio} = \frac{\text{Outstanding Credit Card Balance}}{\text{Total Credit Limit}} \times 100Credit Utilization Ratio=Total Credit LimitOutstanding Credit Card Balance×100Example:· Credit Limit: ₹1,00,000· Outstanding Balance: ₹60,000· CUR = (60,000 ÷ 1,00,000) × 100 = 60%2. How CUR Affects Your CIBIL Score· Experts recommend keeping your credit utilization below 30% of your total limit.· A high CUR, even if you pay bills on time, signals to lenders that you rely heavily on credit, which can lower your CIBIL score.· Conversely, low utilization shows financial discipline and improves your score.3. Common Mistakes That Hurt Your Score1. Maxing Out Credit Cards: Using close to 100% of your limit, even if paid on time.2. Multiple New Credit Cards: More cards mean higher total credit, which can temporarily increase utilization ratios.3. Delayed Payments in Some Months: Even one month of high utilization before paying can affect the score.4. Tips to Maintain a Healthy CIBIL Score· Keep Utilization Below 30%: Pay off a significant portion before the statement date.· Pay More Than Minimum Due: Reduces your outstanding balance and improves CUR.· Spread Expenses Across Cards: Avoid using a single card heavily.· Check Your Credit Report Regularly: Identify any errors or high utilization affecting your score.Bottom LinePaying EMIs and credit card bills on time is essential, but managing your credit utilization ratio is equally important. By keeping utilization low, you can maintain or improve your CIBIL score, ensuring easier access to loans, better interest rates, and healthier financial credibility.
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.
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.