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The Importance of Balancing Your Debt to Credit Ratio

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The formula for calculating your credit utilization ratio is pretty straightforward. To figure it out for an individual card, divide your credit card balance by your available credit line. If you’ve only got one credit card and you’ve spent $400 out of a possible $2,000 this month, your debt-to-credit ratio is 20%.

It’s only natural to consider a company’s balance. since debt is often involved when a business collapses. Importantly,

Your debt-to-credit ratio is the amount of debt you have outstanding compared to the amount of credit that has been extended to you. For example, if you have two credit cards, one with a credit line of $1,000 and one with a credit line of $500, your total available credit is $1,500.

A debt to credit ratio is also known as credit utilization. figuring out your debt to credit ratio is not hard at all. Let’s say you have a credit card with an $8,000 credit limit on it, and you have a balance of $5,000 due. Your debt to credit ratio would be: 5,000 8,000 = 0.625 ratio or 63 percent utilization of your available credit.

The Debt to Credit Ratio is based upon both your revolving and installment loans. It is the percentage of the credit available to you that is used up with debt. Available Credit is Important to Credit Score. Imagine a bath tub that is empty. It is 0% full. Gradually, you fill it with water. When it is about to overflow onto the bathroom floor, it is 100% full. Your credit rating is the same way. When you start out, you have "No" credit rating.

It’s important to keep your debt-to-income ratio low and work to eliminate debt altogether. If you are dealing with sky high student loan balances , or steep credit debt while only making a modest salary, you could look like a risk to prospective lenders.

How to lower your DTI ratio. There are two key ways to lower your dti ratio: reducing your debt and increasing your income. Here are some tips for decreasing your DTI ratio. Ask for a raise at work to boost your income; Take on a part-time job or freelance work on the side; Make extra payments to your credit card to lower the balance

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Probably the most important. not consider any debt or cash that the company may have on the balance sheet. The exact same.

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