What is considered a good debt ratio. Especially if you have more than one card, is it okay if one of the lower balance cards is close to the limit, if there are other cards that aren't being used. Just to make sure I'm figuring this right, how is debt ratio calculated?
10-20% of utilization is good. After 30% i believe it starts hurting, and 50-100% hurts your score a good bit..
is the debt ratio evaluated by factoring in all the accounts you have (balance on each card /total credit limits), or is it evaluated by looking at each credit card separately and determining the debt ratio for each individually?
That's a good question. Technically, credit scoring looks at combined CC debt: combined CC limits. I know this based on reviewing the calculations on my own reports. But I also personally think that a person may be dinged for having one card at a high ratio, even though all the other cards have low to no balances. This is a problem for those of us who use balance transfers on one card to eliminate debt. FICO doesn't seem to suggest this is the case with their reason codes, but some people on the board have reported being penalized for a single high balance.
According to the FICO description of reason codes I've received, they look at both the overall ratio, and individual ratios. quoted: "The score evaluates your total balances in relation to your total available credit on revolving accounts, as well as on individual revolving accounts." This is in the description for reason code 10
Interesting, theother, I didn't know that. I currently have my debt spread out on three cards all with 0% BT promos. One of those promos ends tomorrow and I had planned to BT it to one that still has 4 months at 0%. I will still do that since I don't want to unnecessarily pay interest but I'll be prepared to see a dip in my scores. Once I do the BT I'll be using about 45% of one and 60% of the other but all other accounts will have 0 balances.
There's a difference between debt ratio and utilization ratio. Debt ratio is the total minimum payments of all debt divided by your gross income. For mortgage underwriting, an open account with a 0 balance still will get counted as $10. So ... Mortgage = $1000/mo Car = $300/mo Visa #1 $2000 balance = $50 MC #1 $1500 balance = $35 Student Loan = $250 ====== $1635 total debt payment If you make $50k/year, that's $4167/month, and your ratio is 39% (24% is for housing). Mortgage guidelines are 28% housing and 36% total debt. --- Utilitzation --- This is total of all revolving balances divided by total of all revolving limits. Most people think that 30% is good, 50% is "warning", and anything over 70% is "maxed out". We don't know how FICO weights this factor, nor do we know how different lenders look at it. It may also factor into a lender's "profitability" score -- higher ratios are good, since that means you're a revolver, paying more interest, so you would get a higher profitability score-- that may outweigh a lower risk score. -mj
correct mj! But the utilization ratio affects your FICO scores, and the debt-to-income ratio does not directly affect your scores since the FICO model does not know your income. You can have a really high FICO score and still be turned down for a loan or mortgage if your debt-to-income ratio is too high (This has happened to me before).
Well, sometimes spreading things out can hurt your score as well. I've received "balances on too many accounts" as a reason code. Apparently having too many accounts with balances (even if they are very low) can also hurt your score. But I'm not sure if it's as much. Myschae
I have read that FICO likes no more than 4 or 5 revolving lines with balances. If you have more than 4 or 5 accounts with balances you should pay some of them off to have those lines at 0. I carry balances on 4 cards and I have 5 cards with 0 balance. Kev
