Having good credit is a necessity today if you want to qualify for the best credit cards or to be offered reasonable rates for using them. However, few people know the rules for achieving good credit. Fortunately, if you can follow the rules below, you can achieve an optimum credit rating.
Debt-to-Income Ratio
There are many factors that contribute to your credit rating, and your debt-to-income ratio is one of them. If you have a ratio of 50 percent or higher, then you will be classified as having bad credit. Lenders and companies that offer credit products will view you as a high risk because you have fewer resources to work with and most likely will not be able to cover both your basic living expenses and your credit card payments. To achieve a good credit rating, you need to have a debt-to-income ratio that is below 50 percent, and preferably about 35 percent with your mortgage, or 20 percent without your mortgage.
Balance-to-Limit Ratio
Another factor that impacts the strength of your credit is your balance-to-limit ratio. Credit cards for fair credit as well as other lenders are going to examine your revolving lines of credit for this ratio. They will look at how large your credit limits are and how much of that credit you have already utilized. To get the best credit scores possible, you will want a very low balance-to-limit ratio. This means that you can improve your credit rating by paying down your credit cards, or by establishing accounts with the best credit card companies.
Cards-to-Wallet Ratio
The number of credit cards that you have can help you to develop either good credit or bad credit. You will develop bad credit if you have too many credit cards for your income level, if you have a lot of credit cards that are maxed out, or if you have a lot of credit cards that have late payment histories. You can develop good credit by having a reasonable number of credit cards, by keeping your accounts current and by keeping your balance-to-credit-limit ratio low.
There is a misconception about good credit. Many think that it is elusive or that it is a fixed characteristic. The truth is that credit ratings are constantly changing based on how you manage your credit cards. This means that you have monthly opportunities to raise or lower your credit rating. If you are striving for the best credit rating possible, or if you want to qualify for the best credit cards, then all you have to do is pay your bills on time, keep your balance-to-limit ratios low, keep your debt-to-income ratio below 35 percent, and only have as many credit card accounts as you are able to manage. Follow these simple tips and you will build your credit rating month after month.
