Finance & Loans

Importance of a lower debt-to-credit ratio

Lowering your debt-to-credit ratio will help when it comes to opening new credit lines, paying off your debt and your quest to become debt free. Debt- to-credit ratio is derived by calculating how much you owe and your total available credit limits. For example, if your credit limit total $10,000 and you owe $3,000, your debt-to-credit ratio is 30 percent. It is considered better to have lower debt-to-credit ratio in order to get a better deal on new credit. Also, it might help you to get a better FICO credit score too. This is all because creditors think that you use your credit responsibly.

Keep in mind, debt-to-credit ratio is not the only consideration for creditors. They also consider all open lines of credit, current balances, your total debt including your mortgage, and they pay attention to specific lines of credit belongs to you.

There is no magic formula that explains the best debt-to-credit ratio to have. But it is always considered that having a lower usage of available credit help. One way to achieve that is to spread your credit among all credit lines available and to keep the balance owed as low as possible. Responsible use of credit always help.