Using a credit card for a large purchase is not necessarily a problem if you repay the entire outstanding amount on time. However, regularly using a very high portion of your available credit limit can still affect your credit score, even when you never miss a payment.

The reason is the credit utilisation ratio (CUR), which is the percentage of your total available credit that you are using at a given point in the billing cycle.

Understanding how credit utilisation works is important, particularly if you regularly make large purchases on your credit card, have a relatively low credit limit, or are planning to apply for a loan based on your need.

So, does using 90% of your credit card limit actually hurt your credit score? Does paying the full bill completely offset the impact of high utilisation? And can you reduce the impact simply by making a payment before the statement is generated?

Using a very high share of your limit can affect your score even if you pay the bill on time. What matters is also the balance that gets reported. 

By sharing an example, Adhil Shetty, CEO – BankBazaar, says that if your limit is Rs 1 lakh and Rs 90,000 is reported, your utilisation is 90%. Paying the bill by the due date is important for your repayment record but may not change that reported utilisation. 

Keeping it below 30% is generally a good benchmark, according to Shetty.

Paying down the balance before it is reported can bring down the utilisation shown for that cycle. Using a card a certain number of times is not necessary. Keeping the reported balance low compared with the limit is what matters. 

“Increasing the credit limit can also lower utilisation if spending stays the same. A hard enquiry linked to the limit increase may have a small impact on the score,” Shetty added.

What if you have multiple credit cards?

With multiple credit cards, look at your total credit utilisation rather than the usage on one card. Add the credit limits of all your cards and compare them with your total outstanding balance. 

“For example, say you have three cards with a limit of Rs 1 lakh each. You owe Rs 80,000 on one card, Rs 10,000 on another, and nothing on the third. Your total outstanding is Rs 90,000 against a combined limit of Rs 3 lakh, so your overall utilisation is 30%, even though one card shows 80% utilisation. This means high utilisation on one card does not necessarily translate into high overall utilisation,” says Shetty. 

Keeping the balance on each card under control can still help. Spread spending across cards where possible rather than putting most of your spending on one card. 

Paying part or all of the outstanding amount before the statement is generated can also help lower the balance reported to the credit bureau. 

“A higher credit limit can lower utilisation too. For example, a Rs 50,000 balance against a Rs 1 lakh limit means 50% utilisation. With a Rs 2 lakh limit, the same balance means 25% utilisation. A higher limit, however, should not become a reason to spend more,” stated Shetty. 

What other factors should consumers focus on besides credit utilisation to maintain or improve their credit score?

So, what should credit card holders focus on beyond simply keeping their credit utilisation low? 

Understanding the following factors can help borrowers build a healthier credit profile and avoid habits that could hurt their score over time.

  • Pay card bills and EMIs on time. 
  • Avoid taking on excessive debt and making too many new credit applications in a short period. 
  • Maintain a healthy credit history and credit mix. 
  • Check the credit report periodically to spot errors or accounts that are not recognised.
  • Avoid closing your oldest cards, even unused ones. This is because a longer credit history helps to strengthen your score, and closing an old account can also lower your total available credit.
  • Review your credit reports on a regular basis, since unidentified reporting inaccuracies can lower your score. 

Disclaimer: This article is for informational purposes only and should not be construed as investment, financial, tax, or legal advice. Any illustrations, examples, or return projections used in this article are for explanatory purposes only and do not guarantee actual investment outcomes. The views and opinions expressed by experts quoted in this article are their own and should not be considered investment recommendations. Readers should consult a qualified professional before making any financial decisions. 

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