When your creditworthiness is being determined, a lot of things end up going into the equation. Your credit to debt limit ratio is just one factor, but it is an important one. That being said, it’s important to know what this ratio really is and how it is determined so that you can figure it out for yourself before you apply for a loan.

For starters, your credit to debt limit ratio is also called debt utilization. This is determined roughly by looking at the percentage of debt you owe overall in comparison to your available lines of credit.

To help explain how this work, pretend that you are new to credit and have a teeny tiny $100 credit line. You used this card at the gas station and charged a few gallons, and now you owe $10 to your credit card company. This means that you are presently using 10% of the available credit, and this is you credit to debt ratio. To determine your own, tally up all of your available credit and add up everything you owe, and then do a bit of math to see what percentage of that available credit has been taking up by actual debt to learn what your credit to debt limit ration is.

If you have a low credit to debt limit ratio you have a better chance of having a high credit score and attaining lower interest loans. This is because this number impacts your credit score by 30%. The higher this credit to debt ratio limit is, the more of a credit risk you are. Anything under 30% is good, and the higher it gets, the worse off you are. Do what you can to keep this number as low as you can go, and you might have it have it made in the shade.

Sources: http://www.savingadvice.com/articles/2008/10/11/102973_debt-to-limi-ratio.html

Photo Credit: Debt–TaxFix.co.uk, wallet–http://www.stockmonkeys.com/

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