when. Completely paid off credit cards can actually deliver a lower score than someone who uses their credit regularly and maintains a timely payment history. There are many nuances that play a role, so again, seek professional advice. • Decrease the percentage of your income that goes into paying debts (your debt-to-income ratio). According to Bank of America, keeping your debt at a manageable level is a requirement of good financial health. Your debt-to- income ratio compares your monthly debt expenses to your monthly gross income. To calculate your ratio, add up the payments you make toward debt during a month. That includes your monthly credit card payments, car loans, other debts (such as payday loans or investment loans) and housing expenses — either rent or the costs for your mortgage principal, plus interest, property taxes and insurance (PITI — Principal, Interest, Tax, and Insurance) and any homeowner association fees. Next, divide your monthly debt payments by your monthly gross income — your income before taxes are deducted — to get your ratio. (Your ratio is often multiplied by 100 to show it as a percentage.) For example, if you pay $400 on credit cards, $200 on car loans and $7,400 in rent, your total monthly debt commitment is $8,000. If you make $300,000 a year, your monthly gross income is $300,000 divided by 12 months, or $25,000. Your debt-to- income ratio is $8,000 divided by $25,000, which works out to 0.32, or 32 percent. While the preferred maximum varies from lender to lender, it’s often around 36 percent. • Beware of applying for credit. You want your credit score as high as possible when applying for a mortgage. Thus,
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