ATM :: Impact of spreading out credit card balances on your Cibil credit score!

Source: IRIS | 11 Nov, 2014, 11.02AM |
We all know that if we are maxing out our credit card, it could impact our Cibil credit score negatively. So, some consumers came up with a brilliant idea of spreading balances across five credit cards. They deserve a standing ovation for their genuineness. But banks cannot be fooled so easily. After all it is about money.

What banks really look at is the credit utilization ratio defined as your total credit card balances divided by your total credit card limits. Credit utilization, which is one of the 5 variables that go behind calculating your Cibilcredit score. The lower is your credit utilization ratio, the better will be your Cibil score. So if you think spreading the credit utilization across several cards will resolve the issue, you are completely wrong. Having multiple credit cards can pose a whole new set of problems without resolving the one already we are discussing.

So what happens if you spread your balances across credit cards?

1. You still owe the credit card companies the same amount – just that you owe to five different people instead of one. You have not reduced your debt even by a single buck.

2. This means your credit utilization ratio remains the same – high.

3. If you end up closing an unused credit card, it will reduce your credit availability and increase your credit utilization ratio, hence impacting your Cibil score

4. You increased the number of credit card accounts.

5. Credit Bureaus take into consideration not just the accounts with balances, but also the type of credit accounts. So if you have too many credit cards, it is not a very good thing for your credit score.

6. Opening new credit card accounts will leave enquiries on your Cibil report, which will pull down your score further.

The traditional assumption that you would maintain good credit as long as you made your minimum payment on time may change. Paying your credit card bills in full each month will eventually result in higher Cibil credit scores.

Do remember, credit experts recommend to keep your credit card utilization ratio as low as possible, preferably never exceeding 30%. So if you know you are not able to pay the amount in full every month, at least make sure your balance on credit cards does not exceed 30% of your credit card limits.

(Contributed by Rajiv Raj, director and co-founder at

Source :

Leave a Comment / Feedback / Say a good word!

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s