How a good debt to credit ratio can help your credit score
I am no stranger to debt and that is part of the reason why I started writing about it. I had a lot of debt and wanted to learn about credit so I could make more informed decisions on a day to day basis. One thing that I have notice as I have pay down my debt over the last year is the improvement of my credit score. This is directly related to having a good debt to credit ratio.
Over the last year and half I have seen my credit score go from a credit score below 620 to what might be considered an excellent credit score of 730. Even though this might be on the low end of what is considered an excellent credit score I am going to consider it a huge accomplishment.
Over this time, I have had no late payments, which has also helped my cause. But my improvement in credit score can directly be related to my focus on paying down my debt. But I still have a little more to go.
Here is what I have found about your debt to credit ratio. First, if it is high, it is almost impossible to have a good/excellent credit score. This is the second largest part of your credit score and it carries a weight in your score of 30%. Second, lowing your debt to credit ratio is maybe the hardest thing you can do. You have to commit to paying off every bit of debt. And if you are like most Americans, you are carry a mountain of debt that seems like will never be paid off. Third, your debt to credit to credit ratio is not only based on your total debt and total available credit but also on an account by account basis. This is something definitely overlooked, but could be a reason why balance transfer could hurt your credit score.
So what is a good debt to credit ratio?
I personally am not going to sleep till I have no debt. But most knowledge on the internet will point to a level anywhere between 20-30% of your available credit. This is across all your accounts and also on an account by account basis. If you are there great, but if not getting there again will take to tough things: Time and Discipline.
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