This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Analyze Your Debt to Credit Limit Ratio

By Deepa Venkatraghvan

NEW YORK ( MainStreet)--Your credit card is just like the Tree of Knowledge from the Garden of Eden. You can see the unsparing credit line extended to you but really, you cannot use it all. Well, let me put it this way: you can use all of your credit, but if you do, your credit score will take a massive hit. Deceptive, isn't it? If you've been extended a $1,000 credit line, you would assume that you're fine if you stayed within that limit and paid in full each time. The reality is quite different, because there's something called debt-to-credit limit ratio.

[Read: <a target="blank" data-add-tracking="true" href=""><em> Tire Changing Tricks for Divorced Women</em></a>]

Debt to credit limit ratio

"Your debt-to-credit limit ratio is one of the most important measurements in your credit scores," explained John Ulzheimer, president of consumer education at It's easy to calculate: divide the aggregate outstanding balance of all your credit cards by the total credit limit across all the cards.

The ideal ratio?

"According to VantageScore Solutions, the creators of the VantageScore credit score, you are going to want to keep that percentage to below 30%," Ulzheimer said. "According to FICO, the creators of the FICO credit scoring system, consumers with the highest FICO scores have an average debt to limit percentage of 7%. The lower the better regardless of the credit score type."

Now, the important thing to understand here is at what point of time in your credit card cycle this ratio is calculated. "The debt to limit ratio is calculated based on what's reported to the credit bureaus," Ulzheimer said. "And, what's reported to the credit bureaus is your balance based on your most recent statement."

What this means is that if you had a card with a limit of $1,000 and the balance for your statement of May 2013 was $800, your debt to credit limit ratio will get reported at 80%. It does not matter if you paid the balance in full the day after the statement date.
[Read: <a target="blank" data-add-tracking="true" href=""><em> Cramer Learns How to Read it Later: Old Dog, New Blog</em></a>]

Stay ahead of those credit bureaus

This ratio can be tough on those with lower limits. If you have a low credit line limit of $500, say, it can be frustrating to pay off just to spend another $500. Consumers in such a situation are just trying to earn points and build credit. But in this scenario, to keep the ratio under 30%, it means using only $150 of the limit.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $111.31 0.00%
FB $92.80 0.00%
GOOG $645.44 0.00%
TSLA $241.46 0.00%
YHOO $30.96 0.00%


Chart of I:DJI
DOW 16,790.19 +13.76 0.08%
S&P 500 1,979.92 -7.13 -0.36%
NASDAQ 4,748.3610 -32.9030 -0.69%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs