How to Calculate Debt to Credit Ratio

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Debt-to-Credit Ratio Calculator

function calculateDebtRatio() { var balance = parseFloat(document.getElementById('totalBalance').value); var limit = parseFloat(document.getElementById('totalLimit').value); var wrapper = document.getElementById('resultWrapper'); var ratioOutput = document.getElementById('ratioOutput'); var statusOutput = document.getElementById('statusOutput'); var descriptionOutput = document.getElementById('descriptionOutput'); if (isNaN(balance) || isNaN(limit) || limit <= 0) { alert("Please enter valid positive numbers. Total limit must be greater than zero."); return; } var ratio = (balance / limit) * 100; wrapper.style.display = 'block'; ratioOutput.innerHTML = ratio.toFixed(2) + "%"; if (ratio <= 10) { wrapper.style.backgroundColor = "#f0fff4"; statusOutput.style.color = "#2f855a"; statusOutput.innerHTML = "Excellent Utilization"; descriptionOutput.innerHTML = "This is the ideal range for a high credit score. Lenders view this as very low risk."; } else if (ratio <= 30) { wrapper.style.backgroundColor = "#ebf8ff"; statusOutput.style.color = "#2b6cb0"; statusOutput.innerHTML = "Good Utilization"; descriptionOutput.innerHTML = "Maintaining your ratio below 30% is generally recommended by financial experts."; } else if (ratio <= 50) { wrapper.style.backgroundColor = "#fffaf0"; statusOutput.style.color = "#c05621"; statusOutput.innerHTML = "Moderate Utilization"; descriptionOutput.innerHTML = "Your ratio is starting to get high. This might have a slight negative impact on your credit score."; } else { wrapper.style.backgroundColor = "#fff5f5"; statusOutput.style.color = "#c53030"; statusOutput.innerHTML = "High Utilization"; descriptionOutput.innerHTML = "A ratio above 50% is considered high risk and can significantly lower your credit score."; } }

Understanding Your Debt-to-Credit Ratio

The debt-to-credit ratio, commonly known as the credit utilization ratio, is a critical factor used by credit bureaus to determine your credit score. It measures how much of your available revolving credit (like credit cards) you are currently using compared to your total credit limits.

How to Calculate Debt-to-Credit Ratio

The calculation is straightforward. You take the sum of all your credit card balances and divide it by the sum of all your credit limits. The formula is:

(Total Credit Balances ÷ Total Credit Limits) × 100 = Debt-to-Credit Ratio (%)

Real-World Example

Suppose you have two credit cards:

  • Card A: $1,500 balance / $5,000 limit
  • Card B: $500 balance / $5,000 limit

Step 1: Add your total balances: $1,500 + $500 = $2,000.

Step 2: Add your total limits: $5,000 + $5,000 = $10,000.

Step 3: Divide total balance by total limit: $2,000 / $10,000 = 0.20.

Step 4: Multiply by 100 to get the percentage: 20%.

Why This Number Matters

In the FICO scoring model, "amounts owed" accounts for roughly 30% of your total credit score. A high ratio suggests to lenders that you may be overextended financially and might have difficulty making payments in the future. Conversely, a low ratio (typically under 30%, and ideally under 10%) indicates that you are managing your credit responsibly and have plenty of breathing room.

Tips to Improve Your Ratio

  • Pay down balances: The fastest way to lower your ratio is to reduce the debt you owe.
  • Increase credit limits: You can request a higher limit from your card issuer. As long as you don't increase your spending, your ratio will drop.
  • Don't close old accounts: Closing a credit card account reduces your total available credit, which can cause your utilization ratio to spike.
  • Make multiple payments: Paying your bill twice a month can keep the reported balance low, even if you spend a lot during the month.

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