Debt to Credit Ratio Score

The debt to credit ratio score is a very important calculation for many reasons, including an indication of an individual's financial health. The score, which is used by financial institutions to determine whether or not to grant a loan, and if so, the terms including interest, can be expressed in a range from zero percent to 100 percent.

Debt

Credit card statement outlines debt.

Debt is the total amount of money owed, which for debt to credit ratio scores, is the amount owed on all credit cards. The debt goes up each month based upon spending and interest, and goes down based upon payments. In order to reduce debt the payment each month must exceed the total of the new charges plus interest.

Credit

Credit available is the sum of all credit card limits.

Credit is the total amount that a credit card company will allow to be charged to an account. On a credit card statement it is listed as the credit limit. This amount can be changed by the credit card company. According to CNN Money, an individual can also ask for a raise in the credit limit, with the company making the final decision based upon the history of the customer.

Ratio

This is not a good ratio.

Ratio is the relationship between debt and credit, that is, if debt on credit cards is equal to the credit limit then the ratio would be 100 percent. That would obviously not be a good ratio to have or to maintain. CNNMoney states that the ratio should be under 30 percent.

Score

It is important to know your debt to credit ratio score.

The debt to credit ratio score is calculated as the percentage of debt to credit limit, or the ratio, so the score and ratio are the same. According to Clever Credit Repair, any score over 50 percent is bad, with a score from 30 to 35 percent being ideal from the perspective of potential lenders.

Warning

A zero percent debt to credit ratio score may not always be desirable.

While a 0 percent debt to credit ratio score would appear to be optimal, Clever Credit Repair indicates that such a score may not be best if the desire is to borrow money. Lenders like to see a history of borrowing and then paying back the debt, so an individual who always pays their credit card balance in full each month, while being a very responsible person, may not have the highest credit score. A person who maintains small balances and makes timely payments may be rated higher.