Many of us try to stay in touch with our credit score. For those that have had financial troubles in the past, monitoring your
Debt To Income Ratio
One of the most overlooked aspects of your credit standing is the amount of debt you are carrying in relation to the amount of income you have. Even if you no longer have any delinquent or past due accounts, having a higher debt to income ratio can keep your credit score from increasing. Many people have mulitple lines of credit, each with thousands of dollars in debt. This is usually not a problem, unless you also have a mortgage loan, car loan or large personal loans, such as student loans. The total amount of debt can add up across all of these sources, leading you to have a larger proportion of debt than is manageable by your income.
One of the main ways to determine if your debt to income ratio is too high is whether you can only afford to make your minimum payments. If you cannot afford to make more than your minimum payments your debt to income ratio may be too high. A big problem with having a high debt to income ratio is that you are less likely to be saving money each month. Saving for the future is an important aspect of financial health. If you were to experience an unexpected financial setback and had no savings, you would not be able to make your minimum payments. This would result in missed payments and delinquent accounts, putting you back into trouble with your credit standing all over again.
Reduce Debt To Increase Credit Score
To lower your debt to income ratio, review your debts. Find at least one debt that you can afford to make more than the minimum payment on each month. To your best to payoff that debt in full, while maintaining your payments on the remaining debts. Once you payoff a debt, pick another debt to begin to “attack” with payments until the debt is eliminated. The best way to increase your credit score is to lower your debt to income ratio and maintain a few, small lines of credit with low to moderate balances, with the exception of a mortage or car loan.