We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Credit-To-Debit Ratio?

Tricia Christensen
By
Updated: May 17, 2024
Views: 5,535
Share

A credit-to-debit ratio is more commonly called a credit to debt ratio. It is a measurement of revolving credit and utilization of that credit. A ratio is established between the two so that a percentage can be derived. Keeping this percentage below 50% is advised for people who would seek additional credit or things like auto, personal, or home loans. The credit-to-debit ratio should not be confused with the debt to income ratio, which is an additional measure of creditworthiness.

As stated, the credit-to-debit ratio is total of all revolving credit and all use of that credit. For example, a person might have credit cards with a total limit of $4,000 US Dollars (USD). The consumer could owe $2,500 USD or be utilizing that amount of the revolving credit. The credit-to-debit ratio is 4000:2500, and a percentage can be derived by dividing 2,500 by 4,000. In this case, the ratio can be expressed as 62.5%.

Credit analysts suggest that the ratio shouldn’t exceed 50%, as this may signal that a person is overusing their credit and may exhaust it. There are several ways to address this for the consumer with $2,500 charged on credit cards. One method is to open a new account and increase total credit limit. The better method is probably to simply increase payments to creditors and not charge anything new.

One interesting debate that comes into play when considering credit-to-debit ratio is whether or not a person should close credit cards that are not in use. Some argue this is wise so that the cards don’t present a temptation to charge more things. Others say that closing an inactive card lowers total available credit and may negatively affect credit-to-debit ratio. Therefore it might make sense to keep an inactive card open, simply to maintain a higher available credit amount. It makes less sense to maintain an inactive account if a person must continue paying fees to keep it open.

A credit-to-debt ratio is only one measure of creditworthiness. An equally important measure is the debt to income ratio. This begins with a total of monthly income as compared to how much that income is being utilized. Things like rent, car payments, credit card payments, and any other loan payments are compared against income to see if people have the ability to take on additional debt. Financial experts suggest that the debt to income ratio is best if it is no more than 30%. People who have a debt to income ratio that is higher than 50% may have trouble obtaining loans.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Tricia Christensen
By Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a WiseGeek contributor, Tricia Christensen is based in Northern California and brings a wealth of knowledge and passion to her writing. Her wide-ranging interests include reading, writing, medicine, art, film, history, politics, ethics, and religion, all of which she incorporates into her informative articles. Tricia is currently working on her first novel.

Editors' Picks

Discussion Comments
Tricia Christensen
Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a WiseGeek contributor, Tricia...
Learn more
Share
https://www.wisegeek.net/what-is-a-credit-to-debit-ratio.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.