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Credit Ratios: What Is It and How Is It Calculated?



Each bank must have its own policies related to decision making on credit applications. This causes the possibility of decision making that varies between one bank and another bank. Therefore, it is not uncommon for credit applications that are rejected by the first bank to be accepted by the second bank.

An event like this is very likely to occur for several reasons. One of them is because of the improvement in the credit ratio experienced by the person when re-applying for credit.

Although they have different considerations, in making a decision, all banks will look at a person’s credit ratio. Because the credit ratio is one important component. Therefore, it is very important for you to understand this well and precisely.

What is a Credit Ratio?

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It seems very simple, but most people just don’t understand that well. They actually pay attention to other things and forget their credit ratio. In fact, as previously explained, the credit ratio will be an important point for banks in making decisions.

By definition, the credit ratio is the ratio between the income (salary) and the total amount of installments and the credit/debt the person has. Through credit ratios, banks can see a person’s financial ability. Financial experts suggest a better credit ratio of no more than 40% of total income. This amount is the maximum limit for someone in having debt.

While the maximum safe limit of a bank in assessing whether or not a person’s credit ratio is less than 30%, depends on the bank’s policy. The greater the person’s credit ratio, the less likely the loan application is approved by the bank. Conversely, the smaller the credit ratio, the greater the chances of someone obtaining credit.

How is the credit ratio calculated?

How is credit ratio calculated?

Credit ratio calculation is actually so simple, it can even be done by anyone who needs it. There are no components that are difficult to understand in these calculations. It’s just that it takes accuracy in doing it.

Example: A has a net monthly income of USD 10,000,000 with a number of debts and monthly installments below:

  • KPR Installment: USD 2,000,000
  • Motorcycle loans: USD1,500,000
  • Other debts and installments: USD1,500,000

The total installments and debts owned by A amount to USD 5,000,000, or to be exact 50% of monthly income.

Calculation of credit ratio A: (USD 5,000,000 / USD 10,000,000) x 100% = 50%

With a credit ratio of this magnitude, opportunity A to get a credit facility from a bank will be very small. This amount carries a high enough risk that it is probable that the bank will refuse credit proposal A.

How Banks Determine Credit Ratio Limits

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Related to the value of a person’s credit ratio, there are a number of categories defined by banks. The category itself determines whether a person is eligible or not to receive credit. Below is the division of credit ratios into several categories used by banks in making decisions.

  • Credit Ratio Under 20%

This is the most ideal and preferred loan ratio of banks. Because the amount of debt is considered still feasible and healthy. With a credit ratio of this magnitude, your chances of getting a new loan from a bank are quite large.

  • Credit Ratios between 20-36%

This amount is still considered healthy and feasible by banks to receive new credit. However, under these conditions, you should immediately make savings to improve the credit ratio.

  • Credit Ratios between 37-42%

In this condition, finance began to experience a crisis in a mild stage. It is probable that new credit applications will not be approved by banks.

  • Credit Ratios between 43-49%

In a position like this, you will enter financial difficulties in the not too distant future.

  • Credit Ratio Above 50%

The financial condition is fairly serious and you should immediately seek the help of professional consultants to overcome this.

How to Correct a Credit Ratio

How to Correct a Credit Ratio

If the credit ratio is so bad, this will certainly affect the overall finance. In fact, this is related to the success of your credit loan application to the bank. In order to improve the credit ratio, some people will make various efforts. Keep in mind, this will affect your overall credit history.

In the Debtor Information System (SID), all credit history will be seen clearly and in detail so that this will greatly affect banking decisions with various credit applications made. To work on improving your credit ratio, take the following steps:

  • Increase and allocate the funds you have to pay the existing debt and installments so that the amount of debt is getting smaller and lighter.
  • Avoid spending your money without good plans and calculations. This is very likely to cause waste in finance and make you do not have the financial ability to reduce debt.
  • Don’t make any new debt, including the amount of credit card debt you have. This will make the credit ratio worse.
  • Always try to monitor the credit ratio and make sure this amount gets smaller every day. This will help to be able to improve the credit ratio properly so that you deserve to get new credit from the bank if at any time needed.

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