A credit card limit of Rs 5 lakh may seem impressive, but carrying a balance of Rs 2.5 lakh can hurt your credit profile. Credit utilisation – the percentage of credit you use – is often more important than the limit itself.
Credit utilisation is calculated by dividing the amount you owe by your total available credit. For example, if your card limit is Rs 1 lakh and your balance is Rs 30,000, your utilisation is 30 percent.
If you have multiple cards, lenders may look at the combined balances and limits, but some credit‑scoring models still assess each account separately.
A higher limit can lower utilisation if your spending stays the same. Spending Rs 40,000 a month on a card with a Rs 2 lakh limit uses 20 percent of the credit, while the same spending on a card with a Rs 50,000 limit uses 80 percent, signalling higher dependence on borrowed money.
There is no single magic number that guarantees a good score, but keeping utilisation below 30 percent is a widely accepted guideline. Using only 5 or 10 percent of your credit does not mean you need to spend more just to improve your score.
The timing of when balances are reported can surprise you. If you pay your bill in full before the due date but the issuer reports the balance before your payment is processed, the credit report may show a high utilisation temporarily.
Paying only the minimum amount due can keep the account from being marked overdue, but the remaining balance continues to accrue interest and keeps utilisation high. Over time, this revolving debt can become a bigger problem than a short‑term score dip.
Closing a card can also raise utilisation. If you shut a card with a large limit but keep spending the same amount on other cards, your total available credit drops, and your overall utilisation rises.
Requesting a higher limit can lower utilisation mathematically, but only if your spending does not increase. A higher limit should not be treated as a green light to borrow more.
The best way to manage utilisation is to spend only what you can repay comfortably and check your credit report regularly. Keeping balances low before applying for a major loan can present a cleaner credit profile.
Remember, credit utilisation is just one factor. Payment history, outstanding debt, length of credit history, recent credit applications, and the overall credit profile also influence lenders’ decisions.