Aug
20

Learn How to Calculate Your Debt-to-Credit Ratio

August 20, 2014

calculating your debt-to-credit ratiocalculating your debt-to-credit ratioYour debt-to-credit ratio is an extremely important component of your credit score, so knowing how it’s calculated can help you take control of your credit. Lenders use your score to determine whether or not you are a credit-worthy borrower, so understanding how your debt-to-credit ratio affects your score is also important if you’re considering getting a loan for a new home in Chicago.

A debt-to-credit ratio, which is also known as your credit utilization ratio, is simply the amount of debt you currently have compared to the amount of credit that has been extended to you. For example, if you have two credit cards with $1,000 credit lines each, your total available credit is $2,000. If you were to charge $500 on one of the cards, your total available credit would then be $1,500, making your debt-to-credit ratio 25 percent.

To calculate your credit utilization ratio, just add all of the credit lines that have been extended to you. Then, add up all of the current debt you have on those credit lines and divide the total debt by the total available credit. This will give you your debt-to-credit ratio.

Most creditors look for borrowers whose debt-to-credit ratios are at or below 30 percent. After calculating yours, if you find your ratio is higher, it’s time to create a plan to help you pay down your debt and lower your credit utilization ratio.

To learn more about how you can improve your debt-to-credit ratio, read “

Five Tips for Maintaining an Optimal Debt-to-Credit Ratio” on the Equifax Finance Blog.

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Courtney Rogers

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