Your credit-to-debt ratio is your available credit in proportion to the amount of debt you owe. For example, if you have a $1,000.00 credit card and your balance is $500.00, your credit-to-debt ratio is 50/50. The credit-to-debt ratio, otherwise known as the credit utilization ratio, is a major component of your credit score and is often overlooked. Even if you make your payments consistently, you could have a low credit score due to a poor credit-to-debt ratio. Next to payment history, the biggest element of your FICO score is how much you owe. Payment History is 35% of your score and Amounts Owed is 30%.
Your debt load is the percentage of debt in the credit-to-debt ratio. In the 50/50 credit-to-debt ratio, your debt load is 50%. Financial experts suggest you keep your debt load under 50%. In your income-to-debt ratio, your debt should be less than 36% of your gross income. If it exceeds that percentage, you may have trouble finding affordable credit.
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Improving your credit-to-debt ratio is just like most money-saving strategies. If you have more money, you'll have less debt. A good first step would be to set up a monthly budget. Try your hardest to stay within that budget or, if possible, under budget.
Cutting out small expenses could help tremendously. Don't eat out as much. Bring your own lunch to work. Save those extra funds and use them towards paying off your debts.
Finding a part-time or freelance job is another option. Having another job will increase your budget. In this way, you'll have even more money to set aside to pay your debts. In this way, your debts could be paid off even faster. As long as you have the extra income, you could pay more than the minimum payments on your credit cards.
If it's been a few years since you've applied for credit, you can apply for a new credit card with a competitive rate. See credit card offers. Once you're approved, don't use it. If you have a $10,000.00 limit on your current credit card and the new card has a $2,000.00 limit, you now have a $12,000.00 limit overall. Therefore, if you hold a $5,000.00 balance on the current card, your debt load gets reduced from 50% to 42%.
Finally, you could request a larger credit limit from your lenders. This would be better recommended if it's with a company you have a good history with. In today's economic era, this may not be the most realistic option.
Besides improving your credit-to-debt ratio, you could improve your credit score by signing up for credit repair. At Best Legal Credit Repair, we will dispute all errors and inaccuracies on your credit report with the three major credit bureaus. In a matter of 4-6 months, all those errors could be eliminated and you'll be well on your way to rebuilding your credit. Call us toll-free at 1-800-455-9416 or fill out our online form to sign up for your FREE consultation today!
