Amongst the several banking cards that are available, the credit card is one of the most popular choices. However, when applying for a credit card, there are certain factors you may need to take into consideration. No doubt, you will consider the interest rates and the benefits that come with this card. However, you will also need to consider the credit utilization ratio.
Credit utilization is the ratio, between your credit card expenditures and the sanctioned limit for the card. This can be calculated for your individual card or cumulative cards. The overall spending on your card as compared to the total sanctioned limited on all your cards it eh cumulative credit utilization. This ratio is important as it can affect your CIBIL score.
A high ratio indicated that you are credit hungry while managing a poor debt. This indicated a risky behavior when it comes to borrowing. A nil ratio does not reveal important details about your expenditures, which in turn can affect your CIBIL score. Given below are the steps you can take to maintain this ratio:
Reduce your expenditure:
This is one of the simplest ways to maintain your ratio. However, it may not be the easiest step to take. Review your history and check to see if you can reduce any unnecessary or impulsive expenditures. At the same time, you will need to avoid making these same expenditures in the near future.
Opt for a higher credit limit:
Opting for a higher credit limit can decrease the spending factor or increase the credit limit factor. Amongst both options, opting for the bigger limit will be more beneficial. In order to increase your limit, you can review your credit card issuance. Most banks offer to increase the credit limit after a certain expenditure tenure or usage. You can always check with the card company to find out if you are eligible for this increase.
Apply for an additional credit card:
If you cannot raise the credit limit on your card, you can always apply for an additional card. This card will raise your overall available credit limit.This will make it easier for you to control a high credit utilization ratio. However, you must ensure that your expenditure is spread smartly over all the available cards you have, while ensuring that the dues are paid off.
Distribute your expenditures between all cards:
As mentioned previously, you can always apply for an additional credit card in order to increase the overall available credit limit. However, you can always take your current credit cards into consideration, and review each card’s expenditure separately. Ensure that the consecutive expenditures are distributed judiciously over all cards. Additionally, ensure that your expenditures are synchronized with your billing cycle and due dates.