How to Improve Your Debt Ratio

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Your debt ratio makes up 30% of your credit score. Improving your debt ratio can change your credit score, and how lenders view you as an applicant.

Things You'll Need

  • Paper and pencils, a calculator, and a rough idea of your credit card limits and balances.
  • Find out what your debt ratio is!
    What is your debt ratio? It is how much money you owe compared to your line of credit. A person with a credit limit of ten thousand dollars, who has a five thousand dollar balance, has a 50% debt ratio.

  • Get your ratio down.
    There are two ways to do this: Increase your credit limit or decrease the amount you owe.

  • Increase your credit limit:
    It is unwise to apply for credit that you don't really need, if you're the type of person who will end up using your new credit line, and therefore increaseing your debt ratio. And don't forget that FICO also looks at how often you've applied for credit, and your last application for credit, so if you've applied recently or often, this option may not be for you.
    However, if it has been a few years, find a credit card that offers a copmetetive rate, apply for it, and then, if you're approved... don't use it! Just let it sit there and show FICO that instead of a $10,000 limit you now have a $12,000 limit, and your $5,000 balance/ 50% debt ratio is now a 42% debt ratio. Every bit helps.
    Another option is to ask for an increase in your credit limit from lenders you already deal with. In this current economic era, there may be fewer companies offering to extend a limit, but if it is a company you have a good history with, they may offer to increase your limit a few hundred or even a few thousand. As I said before, every bit helps!

  • Lower the amount you owe:
    Money is tight but look for extra places you can cut out small expenses, and put extra funds towards paying off debt. A major overlooked expense is eating out, try to budget eating out, and pack lunches and snacks which are cheaper at the grocery store instead of the vending machine or local cafe.
    If you can't find a place to trim your expenses, consider a part time job, just for a few months, to pay off a certain chunk of debt. Set a goal and reach it by working at a part time job. You might find one you love, but if not, you know you aren't staying there for long, just until your goal is reached.

Tips & Warnings

  • BUDGET! I don't mean a hit or miss budget, or a guesstimation. Sit down and seriously figure out what percentage of your money is going to debt and other major expenses. There are great books on the subject at your local library.
  • This is just helpful advice, you need to use your own iniative to figure out what is best for you.
  • This is not a complete guide to debt ratios, visit you library or use online resources for more information.
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