Introduction: The 30% Rule That Changes Everything
You pay all your credit card bills on time. Your payment history is perfect. Yet when you apply for a loan, your CIBIL score is lower than expected. Why?
The culprit might be your credit utilization ratio—a metric that affects 30% of your credit score but is rarely understood by Indian borrowers.
Credit utilization is essentially how much of your available credit you're actually using. If you have a credit card limit of ₹1,00,000 and you're spending ₹80,000, you're using 80% of your available credit. That's a problem.
This guide explains exactly what credit utilization is, how to calculate it, why it matters, and the practical steps to keep it in the healthy range (below 30%).
What is Credit Utilization Ratio?
Credit Utilization Ratio (CUR) is the percentage of your total available credit that you are currently using.
Formula: (Total Credit Card Balance ÷ Total Credit Limit) × 100 = CUR%
Example to Understand Instantly
Imagine you have a credit card with ₹1,00,000 limit. You've spent ₹30,000 this month.
Your CUR = (₹30,000 ÷ ₹1,00,000) × 100 = 30%
You're using 30% of your available credit. Simple!
Multiple Cards? Calculate Total CUR
If you have 2-3 cards, add all balances and divide by total limits:
Card B: Balance ₹15,000, Limit ₹1,00,000
Total Balance: ₹35,000
Total Limit: ₹1,50,000
CUR: (₹35,000 ÷ ₹1,50,000) × 100 = 23.33%
Why Does Credit Utilization Matter So Much?
| Impact Area | How It Affects You |
|---|---|
| CIBIL Score | Accounts for 30% of your credit score calculation |
| Loan Approval | High CUR = Higher rejection risk, even with good history |
| Interest Rates | Low CUR = Better rates; High CUR = Higher rates on new loans |
| Credit Limit Increase | Banks rarely increase limits if you're maxing out current cards |
| Lender Perception | High CUR = Financially stressed; Low CUR = Financially healthy |
When you're using 80-90% of available credit, it signals financial stress to lenders. They worry you might default. A low CUR (below 30%) signals financial discipline and confidence.
Real Indian Examples: See The Impact
Example 1: Priya's Loan Rejection Due to High CUR
Card A: ₹90,000 balance on ₹1,00,000 limit (90% CUR)
Card B: ₹40,000 balance on ₹50,000 limit (80% CUR)
Total CUR: 85%
Example 2: Rajesh's Smart CUR Management Gets Approved
Card A: ₹15,000 balance on ₹1,00,000 limit (15% CUR)
Card B: ₹10,000 balance on ₹50,000 limit (20% CUR)
Total CUR: 16.67%
Credit Utilization Ranges: Good vs Bad
| CUR Range | Rating | Impact on CIBIL Score | Action Needed |
|---|---|---|---|
| 0-10% | Outstanding | Maximum positive impact | Keep it this way |
| 11-30% | Excellent | Strong positive impact | Ideal range - maintain |
| 31-50% | Good | Moderate positive impact | Try to reduce to below 30% |
| 51-70% | Fair | Slight negative impact | Reduce urgently |
| 71-100% | Poor | Significant negative impact | Critical - pay down immediately |
Most financial experts recommend keeping your CUR below 30% for optimal credit score. This is the magic threshold in India and globally.
How to Reduce Your Credit Utilization Ratio
Instead of paying once a month, pay mid-month or weekly.
Example: Instead of ₹30,000 balance on statement day, keep it at ₹5,000-₹10,000 by making 2-3 payments monthly.
Higher limit = lower CUR (even without changing spending).
Calculation: If your limit increases from ₹50,000 to ₹1,00,000 and balance stays ₹30,000, CUR drops from 60% to 30%!
Tip: Banks often approve limit increases for customers with 12+ months of perfect payment history.
Instead of using 1 card for all expenses (leading to high utilization), spread spending across 2-3 cards.
Example: Use Card A for groceries, Card B for fuel, Card C for bills. Each card stays at 20-30% utilization rather than one card hitting 70%.
Closing cards actually INCREASES CUR because available credit decreases.
Example: If you have 2 cards with ₹50,000 limit each (total ₹1,00,000) and ₹30,000 balance, CUR = 30%. If you close one card, new total limit = ₹50,000, CUR becomes 60%!
Just because you have a ₹1,00,000 limit doesn't mean you should spend ₹1,00,000 monthly.
Smart approach: Spend ₹20,000-₹30,000, pay in full, repeat. Keeps CUR low, builds score faster.
Common Mistakes Indians Make With CUR
- Mistake #1: Maxing out cards "because I can" or for rewards. High CUR damages score far more than rewards help.
- Mistake #2: Closing unused cards to "clean up." This reduces available credit and increases CUR.
- Mistake #3: Not checking CUR before loan application. Get CUR below 30% BEFORE applying.
- Mistake #4: Assuming payment history alone is enough. Perfect payment history + high CUR = lower score than good history + low CUR.
- Mistake #5: Only paying minimum due. Minimum payments don't reduce CUR meaningfully.
Here's what you need to remember:
- CUR = (Total Balance ÷ Total Limit) × 100%
- Keep it below 30% for best CIBIL score
- High CUR signals financial stress, even with perfect payment history
- Low CUR opens doors to better loans, better rates, credit limit increases
Your Action Plan (This Month):
- ✓ Calculate your current CUR from latest statements
- ✓ If above 30%, start paying down or request limit increase
- ✓ Set goal to reach below 20% CUR
- ✓ Don't close old cards, even if unused
- ✓ Make 2+ card payments monthly to keep CUR low
The Bottom Line: Your credit utilization ratio is one of the easiest metrics to control and improve. By keeping it below 30%, you're literally building your financial reputation with every payment. A low CUR + payment history = loan approvals, better rates, and financial freedom.
Don't ignore your CUR. It's silently determining your financial future.