Watch your Ratio

Watch your Ratio

Building Good Credit

Watch your Ratio

Aside from paying all your debts on time, one of the biggest factors in getting a high credit score is the debt-used to debt-available ratio. In simple terms, here’s how it works: Say you have a credit card with a limit of $5,000. If you carry a balance of $1,000, your credit used to available credit ratio is 20%; you are using 20% of your available credit. If you carry a balance of $5,000, your ratio is 100%. The higher your ratio, the bigger the negative impact on your credit score.

Your goal is to keep your ratio as low as possible on all your credit. Don’t worry about the ratio on debt like a mortgage or a car loan, since additional credit is not “available”, but a home equity line of credit does have credit available, so keep that ratio as low as possible.

Not only will you improve your credit score, but you will also reduce the amount you pay in interest every month, putting more money in your pocket instead.

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