Credit bureaus keep track of your spending, credit card usage, debt, payment, and so on for easy identification of your credit behavior and reliability. They scrutinize all these factors to judge your creditworthiness as well. In this respect, credit utilization ratio is a crucial factor. It is a percentage representation of the amount utilized out of the total usage limit allowed to an individual. It holds about 30% weightage in determining one’s CIBIL or credit score. This necessitates the need for credit card comparison in terms of usage limit allowed by the financial company.
While it is not a common occurrence, reduction in a card’s credit limit often leaves a negative impact on one’s CIBIL score. As a credit card user, you must thus be well aware of the mechanisms so that its usage leaves a positive impact on your CIBIL score. This information might as well come in handy if you have plans to apply for a credit card online.
Impact of credit limit reduction on your credit score
A reduction in your card’s credit limit by the financial company directly increases your credit utilization rate. Here is an example to explain why. Suppose, the previous usage limit on your credit card was Rs.2 lakh, and your actual usage for the month was Rs.50,000. In this case, your credit utilization ratio stands at a mere 25%, which will leave a positive impact on your credit score. Now, if the credit card issuer brings down the limit to Rs.1 lakh, the ratio automatically increases to 50% despite the expenditure remaining the same.
Thus, while maintaining a credit utilization ratio below 30% is advisable for card users, a ratio above 50% is usually considered risky by most financial institutions. A credit card comparison is hence mandatory in terms of credit limit availability in case you are applying for a new card.
You must also consider using a credit card wisely to improve your credit score for future financial prospects. If you own multiple cards, you can easily utilize them as a tool to positively impact your credit score. Whenever you follow the must do routine for your credit card on a regular basis like checking your credit score, paying off the bills every month and on time, be aware of your credit limit and shopping, using your reward points and so on, all the things can go smoothly and you may experience a better credit score all the time.
A poor credit score reflecting against your name often hurts your future prospects of availing funds. To get back your utilization to a favorable ratio, you can try repaying a part of your payment card’s bill. Doing so will help you attain the utilization ratio below the 30% mark.
Also, a credit limit reduction does not indicate appreciable credit behavior of the cardholder, thus negatively impacting the score.
How to anticipate and avoid the reduction of credit limit?
If you want to assure that your credit card application gets approved and there is no reduction in your credit limit, you must use your existing card wisely and adopt a suitable financial discipline. A high utilization rate is one of the primary reasons behind the rejection of credit card applications or credit limit reduction. It means that you must take every possible chance to prevent credit limit reduction by the issuer.
For that, you can start with credit card comparison well ahead of time so that you arrive at the ideal issuer offering a suitable usage limit in your card. You can then easily maintain a proper utilization ratio, which would well improve the credit score too. Timely payment is also a crucial factor if you want to prevent your issuer from reducing your credit limit.
You can opt for cards like Super Card to avail a suitable credit limit so that you can conveniently pay your dues in time. The card also comes with an extended interest-free period to make bill payment convenient for card users.
Unique pre-approved offers on credit cards provided by lenders also increase the benefits for card owners. They help in instant approval and quick access to credit cards along with several other financial products, like personal loans, and business loans. To check your pre-approved offer, you need to provide only your name and contact details.
Applying for a credit card online is one of the most convenient options to avail financing these days. While you resort to the internet to apply for your credit card, you can thoroughly look for the best offers to maximize your card benefit. Credit card comparison is a must to find out the most suitable card for your spending needs. In turn, it would also enable you to use your card wisely and help in CIBIL score improvement.