Credit Score Understanding: Financial ratios taken into account in your credit score rating

Credit score rating

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Several financial ratios are taken into account for your credit score calculation, and your debt-to-limit ratio is one of them. Your debt-to-limit ratio gives you an idea of your debt utilization (or the capacity used), which is calculated by dividing what you’ve spent on your credit card by your total credit limit. The debt utilization is calculated cumulatively on all the cards you own. We don’t need to tell you that going over your credit limit can negatively affect your credit score, as well as increase your interest rate and engender extra fees, this is a well know fact! What you may not know however, is that merely approaching your limit can have harmful consequences as well. Experts recommend keeping your debt-to-limit ratio under 30%. In order to have a better debt-to-limit ratio, you can request to raise your limit, but make sure you don’t yield to the temptation to spend more money than you already do; otherwise a higher credit limit will serve no purpose.

Having a good credit score will make it easier for you to apply for financial assistance from your bank. You might be concerned about your credit score, especially if you are a first time home buyer looking for a mortgage. You can find out your credit score online for free on numerous web sites.

Source: CNNMoney.com