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The Role of Credit Utilisation in Your Credit Score: What You Must Know

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  • Post published:January 15, 2026

When it comes to maintaining a healthy credit score, most people focus only on paying EMIs and credit card bills on time. While timely payments are crucial, there’s another factor that plays a major role in your credit score and is often overlooked — credit utilisation.

Understanding credit utilisation can help you improve your credit score faster, get better loan offers, and qualify for lower interest rates. Here’s everything you need to know.

What Is Credit Utilisation?

Credit utilisation refers to the percentage of your available credit limit that you’re currently using.

It is most commonly associated with credit cards, but it also applies to other revolving credit facilities like overdrafts or lines of credit.

Example:

  • Credit card limit: ₹1,00,000

  • Amount used: ₹40,000

Your credit utilisation ratio = 40%

Why Credit Utilisation Matters So Much

Credit utilisation is one of the top factors influencing your credit score, typically contributing 20–30% of your total score.

Lenders view high credit utilisation as a sign of:

  • Financial stress

  • Over-dependence on credit

  • Higher risk of default

On the other hand, low utilisation indicates responsible credit behaviour and strong financial discipline.

What Is the Ideal Credit Utilisation Ratio?

Most credit experts recommend keeping your credit utilisation below 30% of your total credit limit.

General rule of thumb:

  • 0–30%: Excellent (best for your credit score)

  • 30–50%: Acceptable but could be improved

  • Above 50%: Risky and harmful to your credit score

  • Above 75%: Strong negative impact on loan eligibility

Lower utilisation = higher creditworthiness in the eyes of lenders.

How High Credit Utilisation Affects Loan Approvals

Even if you’ve never missed a payment, high utilisation can:

  • Reduce your credit score

  • Lead to loan rejections

  • Result in higher interest rates

  • Lower approved loan amounts

Many borrowers are surprised to see their loan application rejected despite timely repayments — high credit utilisation is often the reason.

Common Credit Utilisation Mistakes to Avoid

  • Maxing out credit cards regularly

  • Using one card heavily while others remain unused

  • Making only minimum due payments

  • Applying for multiple cards and using them aggressively

  • Assuming full credit limit usage is acceptable

Remember: having a high credit limit doesn’t mean you should use all of it.

How to Improve Your Credit Utilisation Ratio

Here are some practical ways to manage credit utilisation effectively:

1. Pay Credit Card Bills Before the Due Date

Credit bureaus record your outstanding balance, not just your payment history. Paying early reduces reported utilisation.

2. Spread Spending Across Multiple Cards

Instead of maxing out one card, distribute expenses across cards to keep utilisation low on each.

3. Request a Credit Limit Increase

A higher limit (without increasing spending) lowers your utilisation ratio instantly.

4. Avoid Closing Old Credit Cards

Closing cards reduces your total available credit, which can increase utilisation even if spending stays the same.

5. Monitor Your Credit Report Regularly

With credit scores now updating more frequently, keeping track of utilisation is more important than ever.

Credit Utilisation vs. Payment History

Many people ask: Which matters more?

  • Payment history shows whether you pay on time

  • Credit utilisation shows how much credit you depend on

Both are important, but even perfect payment history can’t fully offset consistently high utilisation.

The Long-Term Impact of Good Credit Utilisation

Maintaining healthy utilisation helps you:

  • Improve your credit score steadily

  • Get faster loan approvals

  • Qualify for lower interest rates

  • Increase your creditworthiness over time

It’s one of the fastest ways to improve your credit score without taking new loans.

Final Thoughts

Credit utilisation is a powerful yet underestimated factor in your credit score. By keeping usage low, paying bills on time, and monitoring your credit behaviour, you can significantly improve your financial profile.

Think of your credit limit as a safety net — not spending money.

Managing credit wisely today can unlock better financial opportunities tomorrow.

Looking to apply for a loan or improve your credit health?
UrbanMoney offers transparent, collateral-free loan solutions designed to help you borrow responsibly and build a strong credit profile.