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LESS CAN MEAN MORE FOR YOUR DEBT TO HIGH CREDIT RATIO

MORE is not always better. We all want more. More time. More money. More luck. More friends. More out of life. But you don’t want more when it comes to your ‘debt to credit limit ratio’. What’s that about? It’s the amount of your total credit limits compared to the amount that you still owe (debt to limit ratio).

Thirty percent (30%) of your credit scores is based on your amount of debt. So, the higher your revolving utilization percentage (amount of your revolving credit limits that you are currently making use of) the less points you will earn, which means the lower your scores will be.

You will want to try to have your debt to high credit ratio usually between 10% and 40%. You want to be able to show that you are a responsible user of credit. If you have everything ‘paid off in full’ every month, then you don’t look as appealing to lenders. Remember, those lenders want to be able to see that they can make money off of you. Those lenders are going to be looking for how much you owe compared to how much you were allowed to borrow on each account. Remember, we’re talking about the statement balances compared to the total credit limits.

Here is how creditors/lenders will determine your revolving utilization. You want this number to be as low as possible.

• Aggregate Debt – Just add up all of the balances that are reported on your credit reports. This does include any auto loans, mortgages and credit cards.
• The number of Accounts with a balance – An example, if you have 3 credit cards that have balances due, a home loan and a mortgage with balances, then you have 5 accounts with a balance.
• Revolving Utilization – the amount of your revolving credit limits that you are currently making use of. Remember that a revolving account is an account where your monthly payment is based on your balance. Most revolving accounts are credit cards or retail store cards of some type.

1. Find all the accounts on your credit report that are revolving. Each one has a Credit Limit (the most you can spend on that account) and a Current Balance (the amount that you currently owe on that account).
2. Add up all the Credit Limits on all of your revolving accounts. This is now your ‘total credit limits’.
3. Now add up all of the Current Balances on those same revolving accounts. This is now your ‘total balances’. You want your Total Balances to be less than your Total Credit Limit preferably.
4. Now divide the ‘total balances’ by the ‘total credit limit’ and multiply that number by 100. This is Your Revolving Utilization percentage!

See, less can mean more! Follow these tips to help improve your credit score for this category on your credit report:

• Keep your revolving balances as low as you can to help keep your utilization percentage low.
• If you can’t decrease your balances, then try to get your credit limits increased.
• Do NOT close unused credit card accounts. Closing them will not increase your scores and can have repercussions on your revolving utilization and actually cause your scores to be lower.
• And don’t let your creditors close out those unused credit cards either!. If you have credit cards that you don’t use the credit card companies will eventually close them. Use your card once or twice every few months for something small and pay it off once the bill comes in.

Barbara Partaka

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