Secrets to Managing Your Debt Ratio
Before you can even consider the secrets to managing your debt ratio you need to understand what your debt ratio is. If you add up all your chargeable debt and compare this against your total credit limit, then the difference between these two is your debt ratio. This is important to know because your debt ratio determines 30% of your Fico score. Your debt ratio plays a very important role in determining your credit score.
Now knowing what debt ratio is and its importance you can use these secrets to managing your debt ratio to keep your credit score in prime condition.
One of the most important secrets to managing your debt ratio is to know what your limits are and develop tactics for keeping your credit card balances as low as you can. A good rule of thumb is to try to keep all of the balances below the 50% mark for each of your cards. Many individuals tend to let their credit card debt mountaintop and often it exceeds more than 75% of the limit that they are allowed for the cart. Even though that this card is of maxed out it can still have a negative factor on your credit score. What you can do to help in this case if you are already in this situation is to have your credit card company increase your credit limit. Do keep in mind by doing this that it isn’t paving the way for you to increase your spending. The whole purpose of doing this is to help maintain a better credit score.
Another one of the important secrets to managing your debt ratio is to make sure that you don’t close out your credit cards. Some individuals that strive to pay down and eventually clear off their credit cards feel the best step to take is to cancel these cards. This can have an effect on your credit score and not always a favourable one. What you want to do is maintain your total available credit this helps to increase your score. Many individuals have more than one card and some tend to use one card more than the other. What you want to do is spread the use across all of the cards. And strive to keep them around a 20% debt ratio. This is better than having one card with a high balance and the other cards with barely anything on it.
Stay on top of your credit reports. When checking out secrets to managing your debt ratio one of these should be the instructions to check your credit report on a regular basis. What you want to make sure of is that all of the reporting and information that is contained on these reports are accurate. If not then you need to take immediate steps to rectify the misinformation. Not only is it important to check your credit card statements but you also need to check this against your credit report. If you find that you are running into financial difficulties rather than let your credit card payment slide be sure to communicate with your credit card holders to make some payment arrangements so that this isn’t going to adversely affect your credit score.
Another one of the important secrets to managing your debt ratio is to realize that this takes constant monitoring. With the busy lifestyles that many people live it is easy for debt to get out of hand with increased credit card purchases. There are many good intentions to pay out what is purchased through the month with the credit cards about a month and this may not be possible. When you are aware of your debt ratio then you are going to be more conscious about your spending. If you tend to let your debt racial rise above 20% it can have some detrimental effects on your credit needs in the future. It could affect your ability to make big purchases such as a vehicle or home. It may end up that you have to pay higher interest rates when you borrow all because of your debt ratio which has in turn affected your credit score.
You always want to ensure that your credit rating is in good standing even if you have no intention of making large purchases or borrowing in the future and this is just one of the important secrets to manage debt ratio that you can rely on.
A financial emergency could arise where you need t borrow and you don’t want a low credit score to affect your chances of being able to do this. Using these secrets to manage debt ratio will give you some good guidelines to implement.