What’s a debt-to-credit ratio?

Financial terminology sounds more like code-sometimes, you need to crack the industry-speak before you can even begin to follow any advice by a counselor. However, one of those codes that doesn't require your Crackerjack Decoder Ring is the debt-to-credit ratio. It sounds like what it is.

You affect your debt-to-credit ratio in several ways. Closing a credit card account, increasing or decreasing your credit card limit, getting a new credit card account-anything that affects the total amount of credit offered to you and how that relates to the amount of debt you're carrying on those credit cards.

Your debt-to-credit ratio is calculated by dividing your debt by your available credit. The figure provided is your debt load.

The formula looks like this:

If you have $5,000 in debt on a card with a $10,000 limit, you divide $5,000 by $10,000 and get a 50 percent debt-to-credit ratio.

And that's about all the higher you'd want to see your score go.

That number factors into your FICO score-your credit score, basically, which lenders use to evaluate your credit history to determine your interest rates and credit offers.

According to myfico.com, high balances on credit cards negatively affect your FICO score. But, opening new credit card accounts to increase available credit and lower your debt-to-credit ratio doesn't actually help your credit score either. For one, those multiple inquiries on your credit which are filed with each credit card application will appear on your credit report, and affect your score.

Their advice: Just buckle down and pay off your debt. Don't play musical chairs, moving your debt around to different accounts. Just pay down those revolving credit accounts. And apply for new accounts only when you need it. Having the full buffet of a Visa, MasterCard, and American Express in your wallet won't help your score.

-Elizabeth Miller