The Ratio of Amount Owed to the Credit Line accounts for 30% of your Credit Score. This Ratio measures how you manage your finances and plan for crises. Amount Owed here is not about the dollar amount you are borrowing, it is about the dollar amount you are borrowing relative to the amount available to you.

TIPS: Keep the Ratio of Amount Owed to the Credit Line (AO/CL) Less than 30% for each credit or charge card individually and for all cards combined.

 

1. You should have a good cushion of available credit between your current balance and your credit limits on all open trades. This will have a positive effect on your credit score. This cushion shows lenders that you are unlikely to overextend yourself financially.

2. The ratio of Amount Owed to Credit Line should be less than 30% for each credit or charge card individually and for all cards combined. For example, carrying a $400 balance on a $1000-Limit credit card is bad for your credit score (AO/CL=40%). Whereas, carrying a $1000 balance on a $5000-Limit credit card is OK for your credit score (AO/CL=20%).

3. If you are buying a home sometimes soon, don’t be tempted to open a store charge card to receive discounts. Though, these discounts can be huge, sometimes up to 25% of your purchases on the first day, however, usually you will be approved a couple of hundred dollars more than what you plan to buy. For example if you plan to buy a couch about $1200, you may be awarded a credit line of $1500, in which case your (Amount Owed)/(Credit Line) ratio becomes 80% (almost maxed-out). This will have a negative impact on your credit score.

4. Not all creditors, lenders, etc will send their reports to all credit bureaus on the same day and/or time. If you or your creditor runs your report today at 10:00 AM, your credit reports and credit scores could well be different than the reports and scores if they run a few hours or days later.
    

          Try to find out, if you can, from the creditor when they send their monthly reports to the credit bureaus.
          Then, plan a head and pay as much as possible, e.g., 1 week before of that day to reduce or pay off your balance.

5. Time-by-time, request a soft credit line increase. Typically, creditors can increase your line of credit a couple of hundreds or thousand dollars without running your credit report, if you have a good record or relationship with them for a year or so. If your line of credit is increased, your (Amount Owed)/(Credit Line) ratio decreases and that is good for your credit score.

To find out more about your credit score and how to get a free copy of your credit reports, or find out about credit scores in general and tips on how to improve your credit score, please visit one of the appropriate sites from following:

What is a credit score,

What makes up a credit score, Tips on how to improve their credit score,

What impact they have on your Interest rates & why they are important,

List of Do’s and Don’ts they should do before applying a mortgage loan, and

List of Do’s and Don’ts after being approved for a mortgage loan.