Debt ratio?

louiejesse

Hi all

I've been reading through the boards this evening and a couple of times came across people talking about debt ratios. I want to make sure I am understanding this term correctly:

Debt ratio = % of credit available/% of credit being used.
So, for example, if my only credit was a CC with £1,000 limit and my balance was £500, my personal debt ratio would be 50%.
Is that correct?

Thanks in advance

lvm

I know Experian gives you that % but it doesn't call it a debt ratio. Not actually sure what they call it.

There are 2 proper definitions of a debt ratio (that I'm aware of).

One is used more for business purposes and is (current debt)/(assets).

The other for more personal use if (debt repayments)/(monthly income).

Tixy

Hi

People tend to talk about 2 debt ratios on these forums (particularly if they are thinking of applying for new credit and consolidation loans).

The debt to credit ratio is as you describe above.
The other is their credit to income ratio. I.e £4500 credit card limits plus £2000 overdraft limit plus £1800 on a loan compared to an income of say £16k, would be a ratio of 52%.

Depends on the context people could be talking about either of these.