Maintaining a healthy Credit Utilisation Rate is important for a good credit score.
Most people use credit cards to manage their expenses these days. A credit card makes your financial balance flexible. Some people run all their expenses with a credit card because it helps them keep track of their expenses every month. Later, they clear their credit card bills when their salary gets credited at the end of the month or the beginning of the next month.
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However, there are many precautions when running a credit card that you should take care of. Are you one of those people who spend the entire credit card limit every month? Due to this, your expenses go away, but you may also have to bear the loss.
Maintaining a healthy Credit Utilization Rate(CUR ) is important for a good credit score. A CUR of less than 30 per cent is recommended to maintain a good credit score. A high CUR indicates that a person is utilizing an excessive amount of their available credit, which can further lower their credit score.
When you apply for fresh credit, such as a loan or any other credit card, lenders assess your CUR. That’s why it is important to use credit cards responsibly. Maintaining a low CUR can improve your chances of increasing the credit limit on your existing credit card. A higher credit limit will increase your available credit and further reduce the CUR, potentially benefiting the credit score.
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If the expenses are high, one can ask for an enhancement of their credit limit. Sometimes card lenders offer higher credit limits to consumers who repay their loans on time. This is also a way to keep your CUR below 30 percent.
We also know that credit cards have become one of the must-have financial tools of our lives, but also come with a set of disadvantages. Let’s take a look.
1. Overspending: Credit card holders often end up making unnecessary expenditures and exhaust their credit limit and further fall into a debt trap. This makes users owe more money as a result than they can repay. Therefore, cardholders must keep a limit on their purchases made with the credit card to ensure that they are not overspending.
2. High charges: There are often higher levels of interest charges on credit cards which cardholders overlook at the time of using their credit cards. This frequently leads to expensive costs and big debt. So one must ensure that they pay their bills on time and also avoid unnecessary expenses.
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3. Minimum due: One of the major drawbacks of a credit card is the minimum amount owing, which is stated at the top of the credit card statement and leads customers to believe that this is the full amount owed. This is not true, though, as it is the minimum payment the company requires one to pay to keep getting credit facilities.
