Debt-to-Credit Ratio: Calculation & Importance for Credit Score

Keeping a low debt to credit ratio improves your credit score.

The FICO credit scoring algorithm -- the most popular in the United States -- bases 30 percent on your current debt levels, including your ratio of debt to available credit on your revolving accounts, such as credit cards. Keeping your debt to credit ratio low will improve your credit score. According to the Motley Fool, a multimedia financial services company, your total debt to credit ratio should remain below 35 percent. To calculate the debt to credit ratio, you need to know your outstanding balances on your credit cards and your credit limits on each card.

Step 1

Add the amounts of your outstanding balances on your credit cards. For example, if you have three cards with balances of $1,500, $500 and $1,000, your total debt would be $3,000.

Step 2

Add the amounts of your credit lines on your credit cards. For example, if your three cards have credit limits of $2,500, $6,000 and $3,500, your total would be $12,000.

Step 3

Divide your total debt by your total credit. In this example, you would divide $3,000 by $12,000 to get 0.25, or 25 percent.