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If it is the festive season and sales are going on on sites like Amazon and Flipkart, then it becomes difficult to stop yourself from shopping. People want to buy many products at once. In such a situation, getting a product on No Cost EMI or normal EMI seems to be a great offer. However, this great offer also becomes a cause of trouble for some people.

The real problem comes when all these EMIs together eat up a large part of your credit card limit. In such a situation, even if your monthly EMI is low, your credit utilization ratio deteriorates, and it directly affects your CIBIL score.

The real game of shopping on EMI

By buying a product on EMI, you feel that your budget will not be affected much. But according to the card limit, a large part of your money gets blocked. Suppose you have a credit limit of Rs 2 lakh on your credit card, and you have purchased products worth Rs 1.2 lakh on EMI. Even though your monthly installment is only Rs 15-20 thousand, 60% of your limit has been used

Why is the credit utilization ratio important?

The credit utilization ratio shows how much of the card limit you have used. Financial experts believe that it should always be kept below 30%. That is, if you have a limit of Rs 2 lakh, then try not to spend more than Rs 60-70 thousand.

Misconceptions about EMI

Many people think that if their monthly EMI is less than 10% of the card limit, then their credit profile is safe. But the real damage is caused by how much of your limit is blocked. If it goes beyond 50-60%, then banks and loan companies consider you a high-risk customer.

Losses due to a poor CIBIL score
The effect of a poor CIBIL score is not only on credit cards but also on your future loans.

There is a problem in getting a home loan or a car loan.

Banks offer you a loan at a higher interest rate.

Sometimes a loan also gets rejected.

The chances of increasing your credit card limit decrease.

An easy way to avoid

Always do not spend more than 30% of the card limit.

Avoid buying many products on EMI at once.

Pay the bill on time every month.

Try to increase the limit so that the utilization looks less.

Do not keep many cards, but spend by keeping a balance of 2-3 cards.

Conclusion
Festive shopping is fun only when your financial profile is not bad. While shopping on EMI, do not only look at the monthly installment, but also think about how much of your limit is getting blocked. If it is going above 30% then be alert; otherwise, your CIBIL score may get affected and you will face problem in getting a loan in future.

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