How Your Debt-To-Credit Ratio Affects Your FICO Score & Home Buying Potential

by Curtis

banks, credit rating, debt relief, home buying, loans


With the current economic conditions, the housing market is wide open for qualified buyers.

Interest rates are at their lowest in decades. Combine that with all the government-sponsored incentives, and the time to buy your first home is right now!

Of course qualifying for that 30-year fixed rate mortgage will require your credit rating to be higher than what was acceptable just a couple of years ago.

Did you know that your credit rating score depends on more than just the fact that you’ve been faithful and punctual about making your credit card payments and car loan on time?

Your debt to credit limit ratio has a 30% impact on your FICO credit score rating.


This portion of your credit score refers to credit card debt only.

If you have a group of credit cards with limits that add up to say $10,000 and the outstanding balance on all the cards amounts to $5,000, then you have a 50% debt to credit limit.

Your FICO score reflects how much of your available credit you are utilizing. In the grand scheme of things, a debt to credit ratio of under 30% is considered good and will aid in raising your overall FICO credit score.

Don’t confuse your debt to credit ratio with your debt to income ratio. Both are used to determine whether you qualify for a home mortgage or not, but only the debt to credit ratio will influence your FICO credit rating score.

Your debt to income ratio is the total amount you currently owe compared to your total income. So, if your current monthly credit payments amount to $1,500 and your total monthly income is $3,000, then you have a debt to Income ratio of 50%. (This includes car loans, credit card payments, signature loans and any other scheduled monthly credit related payments.)

Most conventional home loans require that your debt to income ratio is less than 28% of your monthly income.

Lenders are also concerned with the cost of your housing. That includes your projected house payments, insurance, and utilities. They want to be sure that you can afford the house you’re looking to buy. This figure is acceptable when it is below 28% of your gross monthly income.

Many things can affect your FICO credit score. When it comes to getting a home mortgage, that magic number must reflect the fact that you have taken care of your financial obligations first… in order to qualify for the home of your dreams.

Don’t forget, your credit rating can stop more than your new home purchase. It can also prevent you from renting an apartment, getting utilities turned on, or buying that hot sports car you’ve always wanted.

Taking care of your credit and keeping your use of credit cards and your debt to credit ratio as low as possible will go a long way in giving you the financial freedom you need to buy a new home.

This video explains ways that you can quickly improve your debt to credit ratio:

How To Tell If You Have Too Much Debt

credit-card-statement-by-JasonRogersFotographie.jpg It’s very easy to find yourself living from paycheck to paycheck these days.

Having a nest egg is hard when times are so uncertain, and people don’t know if they’re going to have a job tomorrow.

But it could be even worse… you could be too far in debt.

Here are 16 ways to tell if you’ve got too much debt. A few of them include:

  • More than 20% of your net paycheck is going to pay credit cards.
  • You tried to consolidate your loans and were turned down as too high risk.
  • You can’t get a loan unless someone co-signs.
  • You’re looking for the next big deal to solve all your debt problems.

If you’ve found yourself swimming in debt and wondering how you’re going to crawl out from under the debt pile, it’s probably time to talk to a Consumer Credit Counselor and get some help.

A Consumer Credit Counselor can assist you in putting together a budget that you can live with and still have enough money to live on after the bills are paid. It’s definitely worth looking into.

More About Debt To Credit Ratios