Your debt ratio is calculated by adding up all your various credit limits (say a Visa with $5,000; a Discover card with $4000; a Macys charge with $1000) to arrive at your total credit ceiling. In this case it would be $10,000. You do NOT want to owe more than 30% of this total number or you will be perceived as over-extended to lenders. So, in this case, no debt over $3,000 if you were shopping for a loan. Keep in mind that credit reports show historical high balances on your credit cards, so a lender will see if you have ever maxxed out a credit card (not the best sign). Shuttling all your debt onto one low interest card is a smart move if you’re trying to pay down your debt. Otherwise, lenders like to see you using a range of credit across several cards (from major credit cards to store charges). They are looking for responsible usage patterns when evaluating your credit. Above all, do what you need to do to pay down debt first, ahead of any other considerations.

The big no-no is closing down one of your credit cards in the mistaken belief that this will help your rating. All you wind up doing is reducing your total credit limit which then pushes your debt to credit limit higher. For example, take the imaginary $3k debt above. If you close your Discover card, you lose $4k in credit limit. That takes your total credit limit down to 6k – and now that 3k you owe represents 50% debt, way over the “allowable” limit. Instead of closing the account, just don’t use it. But let the credit limit work for you.