Finance Quick Answers
I recently applied for a car loan and was asked about my credit capacity. How do you 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. 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 is not a time to take on additional debt.
Source: Dollar, P. (1999, January/March). Talking dollars makes cents.
Written by:
Sandra McKinnon, Consumer & Family Economics Specialist,
University of Missouri Extension
Cynthia E. Crawford, Ph.D., Consumer & Family Economics Specialist, University of Missouri Extension
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Last update: Sunday, July 27, 2008
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