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How credit card balances impact your credit score?

08-Sep-2017 written by : FSI-Team

card balances impact

In the modern world that we live in, it is impossible to imagine life without credit usage. Credit cards are indispensable in today's world. There is no disputing the convenience of such cards. You can use your card to buy anything from groceries to gadgets and reap rewards on your usage as well. In fact judicious use of credit cards can help you build a good credit score. On the other hand, if you are not careful with your cards and your outstanding balances exceed your repayment capabilities you may not only land up in a debt trap, but it may seriously jeopardise your CIBIL score.


As you may be aware, your CIBIL score is a three digit number between 300-900 based on the credit behaviour. It is important for all to maintain a good CIBIL score as it is a considered as a measure of your financial health. It is one of the factors taken into consideration for credit assessment by a lender when you apply for a fresh line of credit. A low cibil score may make it nearly impossible for you to access timely credit.

There are several factors that impact the credit score of an individual. Each factor has a different weightage in the calculation of credit score.

  • Payment track record is the most important factor that impacts credit score and has accounts for 35% of your score.
  • The level of debt accounts for 30% your score.
  • Age of credit of the length of credit history accounts for 15% of the score.
  • Number of hard inquiries and the mix of credit account for 10% each.

The level of debt is where your credit card balances come in. As you can see, it the second most important factor that impacts your CIBIL score. In financial parlance it is called credit utilisation. In other words, credit utilisation is the amount of credit you use as against the total amount of credit made available to you. The lower the credit utilisation, the better are your chances of maintaining a high CIBIL score. Financial prudence states that the credit utilisation should not exceed 30%.

Therefore it is obvious that to keep the credit utilisation low, you need to keep credit card balances under check. So what is a good balance to maintain on your credit card? Ideally you should try to maintain zero balance on your card pay off your entire outstanding balance within the credit card billing cycle, but that may not always be possible. You should therefore keep credit spend under 30% of your total credit limit. When the credit utilisation exceeds 30% you will find credit score going down, that will eventually lead to a low cibil score.

Here are a few tips to keep your credit utilisation under check.

Make more than one payment in a month- If you find it difficult to pay your entire outstanding balance at one go, it is best to break up your balance and make two payments in a month. This will be easier on your pocket and also keep the credit utilisation low.

Spread your usage over multiple cards-Spreading your credit usage over multiple cards rather than keeping your balance concentrated on one card is another way of keeping credit utilisation low. However, you must be mindful of your spend on each card to ensure that your spending does not go overboard.

Increase your credit limit- If you are not confident of using multiple cards, you could also consider increasing the credit limit on your existing card. If you maintained a good repayment track record, credit card issuer should enhance one's credit limit without any hassle.

Thus as you can see, your credit card balances plays an important role in influencing your credit score. You must therefore make a conscious effort to keep your card balance low to maintain a high credit score.


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