Among the criteria that lenders use to determine your eligibility for a mortgage loan is your debt-to-credit (DTC) ratio. According to Equifax, one of three major credit reporting entities used by lenders, landlords, credit card companies, employers, and others, debt-to-credit is the amount you owe across all revolving accounts compared to the amount of revolving credit available to you. This is one component that comprises 30% of your total credit score, and it includes your payment history, how many credit accounts you’ve got and what types of credit they are.
You can calculate your DTC ratio by gathering all your credit statements and dividing the total amount of credit available by the total amount of debt. This will give you your credit utilization ratio or DTC. Explains SmartAsset.com, credit card issuers look at your income, credit score, bankruptcy risk, and debt-to-income ratio to determine how much credit to give you.
Credit scoring companies also look at how much money you’re paying on your debt each month relative to your income. They don’t like to see DTCs any higher than 30%. The higher your balances are, the lower your credit score will be. You’ll also pay higher interest rates, making it more difficult to pay off debt.
Look at your credit cards and determine the DTC on each one. Pay down the cards with the largest balances to credit limits first. The lower your DTC, the better it is for your credit score, with the ideal being close to zero.
Article courtesy of bhhs.com