Reduce Credit Utilisation Ratio

By: Eric

What is the lender's foremost concern while lending money? It is whether his money will come back to him or not. And this he judges by a number of factors. Availability of security can to a great extent assure the lender. But, what if you can't produce any asset as collateral? On what basis will the lender grant you the loan? Credit ratio is one important parameter that gives the lender an idea of your creditworthiness. Credit utilisation ratio is another factor that plays a vital role when it comes to the lender's decision.

What is Credit Utilisation Ratio?
It is the ratio of a borrower's actual debt to his or her potential debt. For example, if a customer has ?250,000 limit as secured loans and he has taken a loan of ?50,000 on his home equity, the credit utilisation ratio comes out to be 50%. As per the financial experts, this ratio should not cross 50%. As the part of your credit score, credit utilisation ratio is given 30% weightage.

Unsecured Personal Loans are high risk ventures for the lenders. A high credit utilisation ratio would amount for greater risk for the lender. It indicates that the borrower has already taken much loan and therefore his debts are mounting high. This may also mean less disposable income of the borrower and thus, low affordability. So, the lender may reject your loan application. So, it is always advisable to borrow what you need and afford to repay, not how much you are eligible for. It is deadly to overkill your credit card and overdraft limits as this will eventually raise your credit utilisation ratio, diminishing your chances of getting unsecured personal loans.

What can get you a low APR on unsecured personal loans?
It's is a golden rule- you receive low APR when your outstanding debt as a percentage of your available debt is lower. Make sure your credit utilisation never goes over 50%. If you can't pay down your debt, ask your lender to increase your available credit. This will have the same result as paying down your debt, but make sure you aren't tempted to use that additional credit for personal purposes. So, a low credit utilisation ratio amounts to cost-effective and profitable deals on unsecured personal loans.

Most Read Articles On
"Personal Loans"
Personal Loans
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Personal Loans
 



Share this article :
Click to see more related articles