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Credit utilisation ratio: How to use multiple credit cards to reduce this ratio

Credit cards are one of the ideal ways to make payments. Not only do they offer the convenience to make any transactions, but it also offers a mean to track your record. It also shows your availability of credit on tap. However, this can be optimally utilised only if you maintain a prudent use of your credit card. This is also the place where the credit utilisation ratio can be used as a parameter, to keep a tab on your credit card use.

The credit utilisation ratio (CUR) is an outstanding credit balance expressed in a percentage that is compared with the total credit limit across all your credit cards. As a card holder, it is crucial that you keep this ratio as low as possible, as most lenders and financial institutions will use this as a parameter of an individual’s credit management. Given below are some of the factors pertaining to the CUR and why should you be aware of it:

Why a high CUR is not good for you: Running up your credit card will not only lower your credit score, but it will also make your CUR look credit hungry. It will always make you look like you are in a financial crunch. When your CUR is high, lenders will assume that you are defaulting on your payments. This can affect your credit score negatively. This, in turn, will affect you especially if you are planning to apply for a loan. Therefore, as a precaution, you should keep your credit expenditure less than 30% either by using multiple cards or paying off your debt as soon as reaches its limit. Ensure that you do not overuse any of your cards, especially on a regular basis.

How can you benefit from using multiple cards?:While it is a good practice to make your expenditures through your bank cards, it is an ideal option to split your expenditures through multiple cards. This helps reduce the CUR for each credit card. As mentioned previously, this card is calculated separately and collectively on each credit card that is allotted to you. You can easily use these cards judiciously in order to maintain a healthy CUR. All you need to do is identify your monthly spending patterns and plan your expenditures accordingly to minimise your CUR or even the use of your credit cards. If you think you are spending a bit too much, opt for a higher credit limit.

When should you use these multiple cards? No doubt, it may be easy to opt for these credit cards when you are in a financial crunch. However, it is important to consider using these cards only when you need it. Opt to use the cards wisely, only to increase your purchasing power. Compare the different cash back offers and rewards for specific products, and then use the appropriate card to optimise your shopping experience.

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