How to Lower Your Credit Card Ideal Ratio Debt

Ideal Ratio Debt

Your credit card ideal ratio (also referred to as credit utilization) is one of the key indicators used in calculating your FICO score. This ratio is determined by dividing all debt balances across your revolving accounts such as credit cards, lines of credit and home equity loans with your available credit limit.

Low debt-to-credit ratios are an indicator that you use your available credit responsibly, which in turn will boost your score. But keep in mind that this figure won’t remain static; its fluctuations depend on how frequently and responsibly you utilize credit.

Credit utilization accounts for 30 percent of your score and lenders may view you as high-risk if your card limits have been maxed out. Therefore, it’s crucial to keep them as high as possible while keeping debt levels to an absolute minimum.

Your credit card debt ratio should ideally fall under 10% of your net income. This is because spending too much on debt payments means less income available for savings, investments and dealing with unexpected expenses.

One way to lower your debt-to-credit ratio is to pay off balances quickly; this will decrease overall balances, utilization rates and total interest costs.

An additional option for increasing credit limits on existing cards is applying for increased limits, making the process quick and painless; just make sure your spending doesn’t go beyond its set limit!