IMPACT OF HIGH CREDIT UTILIZATION RATIO ON CREDIT SCORE
1. Decreased Credit Score:
A high credit utilization ratio, especially if it’s close to or exceeds your credit limit, can lower your credit score. This is because it shows that you are using a large portion of your available credit and may be at a higher risk of defaulting on your loans.
2. Increased Risk:
Lenders use your credit score to determine your creditworthiness and the likelihood that you will repay your debt on time. A high credit utilization ratio can signal to lenders that you are overextended and may not be able to repay your debt, making you a higher-risk borrower.
3. Difficulty Accessing Credit:
A lower credit score can make it harder for you to access new credit or secure favorable loan terms in the future. This can include higher interest rates, higher fees, and more restrictive loan terms.
4. Negative Impact On Credit History:
A high credit utilization ratio can also have a negative impact on your credit history, which is a record of your credit-related activity over time. Late payments and high credit utilization can stay on your credit history for up to seven years, making it harder for you to improve your credit score.
5. Decreased Credit Limit:
In some cases, a high credit utilization ratio can also result in a decrease in your credit limit. This can further increase your credit utilization ratio, compounding the negative impact on your credit score.
