CREDIT CAPACITY

By Cynthia E. Crawford, Ph.D., Consumer & Family Economics Specialist, University of Missouri-Columbia, University Outreach & Extension

Have you recently applied for a loan and was asked about your credit capacity?  Keep reading to see how you can determine your credit capacity.

You can determine your credit capacity by totaling your monthly loan payments, including credit cards, student loans, car loans and any other monthly payments. Do not include rent or mortgage. Then list your monthly income after taxes. Now divide the total owed by the total earned. Sound too complicated?  Take a look at this example:

For instance, you have $500 per month in loans and your net income is $2000. Divide your monthly payments ($500) by your income ($2000). That's 25% of your net income spent on credit. You are considered to be in the debt danger zone at 20%. Consider reducing your debt level by cutting your spending and diverting those funds to your credit payments. If you're already at 25%, it may not be a good time to take on additional debt.

To see how credit savvy you are, take the Ultimate Credit Card Quiz at:  http://missourifamilies.org/financequiz/index.htm.