What RBI’s new credit reporting rules mean for your credit score

Question: I have one credit card with a ₹50,000 limit. If I use it to buy something worth ₹40,000 and repay the card immediately, can I then use the card again to purchase another item for ₹40,000?

This is a relevant question, especially in the context of the new credit score rules announced by the Reserve Bank of India. 

Let’s address the question about the spending limit first. In the above example, if you repay your credit card bill immediately, your spending limit will be restored. If the payment is done online, the restoration should be effective within a few minutes. 

You can check with your card issuer on how long the payment takes to be credited to your card. Once the spending limit is restored, you can proceed with additional purchases. 

However, note that even if you don't pay off your balance, your card may still allow you to exceed your spending limit for a fee.

You can overshoot your spending limit, at a cost 

For example, one large card issuer charges 2.5% of the over-limit amount with a minimum fee of ₹500. This fee may be applied once in a billing cycle. You can speak to your bank or card issuing company to understand if over-limit spends are allowed on your card, and what the applicable fees will be. 

You can also request a limit enhancement since you’re able to demonstrate the capacity to comfortably repay your dues. That’s about the credit limit. Now, let us look at the potential impact on your credit score as rules around this have changed. 

Card issuers are now required to provide fortnightly reports of their credit habits to your bureau, such as the Credit Information Bureau (India) Ltd (CIBIL) or Experian, instead of the earlier monthly frequency. This means that your credit score could potentially see fluctuations during a month, which wasn’t the case earlier. 

In the above example, your credit utilisation is high at 80% ( ₹40,000 spent from a limit of ₹50,000). This could marginally reduce your score during the fortnightly updates. 

However, since you’ve expressed the desire to pay off the amount before the billing cycle ends and the bill is generated, the impact on your score—all other factors remaining constant—should be neutral.

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