What Is a Good Credit to Debt Ratio?

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    Defined

    • The credit-to-debt ratio indicates the amount of used debt compared to the total amount of credit an individual can use. For example, an individual with total outstanding debt of $2,400 and available credit of $7,500 has a credit-to-debt ratio of 32 percent.

    Function

    • Lenders often look at this figure to determine how well an individual manages debt. While no single standard exists for this ratio, having a credit-to-debt ratio of less than 50 percent may be more positive for individuals.

    Considerations

    • Another important calculation is the income-to-debt ratio. This formula compares outstanding debt to the individual's gross income. For example, annual income of $19,500 and debt of $2,400 is a ratio of 12 percent. This can help make the credit-to-debt ratio look better if an individual has a high income.

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