how does credit utilization affect credit score?
Credit utilisation ratio is basically the percentage of amount you are using from the credit available. A high Credit utilization ratio indicates that you are a risky borrower and might not be able to repay. This impacts your credit score negatively and makes securing loans difficult. The credit utilization ratio under 30% of the available limit is good and indicates you are using credit responsibly. It helps in improving and maintaining a good credit score.
For example, if your credit card limit is ₹1,00,000 and you regularly spend around ₹80,000 on it, your utilization is 80%, which is considered very high. But if you are spending around 30000, the ratio is 30% which is considered low and is good by the lenders.