Balancing Your Credit To Debt Ratio
Balancing your Credit to Debt Ratio
Having debt or credit accounts is not a crime, and if they are well managed they are actually beneficial in improving your credit rating and make life a little more comfortable. There is however a line between having credit that you are in control of, and using every penny that is available to you. Your credit score will be positively affected to a point, by well managed credit, but cross over the line and you will see your score start to drop even if you are still maintaining your monthly payments. Here are a few tricks on how to stay on the right side of the credit to debt ratio.
Don’t look credit hungry
One of the biggest factors lenders look at when running a credit check is how much credit you have applied for recently. Typically these records date back two years, but most will only take into account the last six months. Be wary when applying for credit, as the more applications on your file, the more credit hungry you will look, and the less likely you are to be accepted for any. Lenders take lots of applications to mean that you are desperate for credit and are not managing within your current means. With this in mind, you should always think twice about whether you absolutely have to run a check before doing so.
Have credit you don’t use
Ensure that the credit you have is not pushed to the limit, as the higher the percentage of your available credit you are using, the worse your credit score will be. For example, if you had a credit card with a £2000 limit and it was maxed out you would be looked on less favourably than someone with a £5000 limit who was using £2000 of this, even though your debt is the same. Don’t be afraid to have a card you don’t use in order to improve this ratio, and make sure you check online to see how you score on this. Use a credit cleaner bad review site to find out which credit reporting services are best to check your score.
Pay more than the minimum
Repeatedly paying only the minimum repayment amounts, not only makes your debt build up with interest, but it also sends out signals to potential lenders that you already have more credit than you can handle, making them less likely to approve you. Always try to pay a little more than the minimum off of your credit accounts each month to improve your debt to credit ratio and save yourself too much extra debt in the form of interest. If you are struggling to make the minimum repayments on an account then you should seek advice from either your account provider, the Citizens Advice Bureau or look at taking out a consolidation loan.
Aim for a ratio of about 50:50 in terms of credit you have available and unused, to debt that you currently have on credit accounts and loans. If you stay close to this figure you should have no problem obtaining further credit and your overall score should remain high, or even increase.
Bill Turner is a successful freelance writer and author. He enjoys marathon training and volunteering at his local animal shelter.
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