It’s a good idea to know your credit score and how that number will affect you. If you’re buying a house or a car, your credit score helps lenders know what interest rate you should be charged – the higher your credit score, the lower the rate you can earn. However, while the credit score is important, it only tells a part of your financial story.

There’s a second score you should know about and understand how it relates to your financial well-being – your debt score. Your debt score is how much of your income has to be used to pay off debt. The higher your debt score, the more debt you have. You can’t rely on your credit score to tell you when to stop spending, but learning your debt score can help you think twice about buying on your credit card. Plus, lenders may use your debt score in lending decisions, so if you don’t know it, you’re “flying blind” while shopping for loans.

The simplest way to remember the difference between the two scores is this: a credit score shows whether you can borrow money; a debt score shows whether you should borrow money.

How much debt should I have?

The traditional rules of thumb state that no more than 28 percent of your monthly income should be dedicated to housing expenses and no more than 36 percent to total obligations including housing, credit card, auto payments and student debt. Lenders often have no problem extending loans to you, but whether or not you should be taking the loan is an entirely different question. In other words, consumers may have a good credit score but poor debt score. Those consumers are able to borrow more money, but probably should not.

How can I figure out my debt score?

The easiest place to start is a site that calculates your debt score for free, like DebtScore.com. A variety of online sites offer your debt score, but only DebtScore.com offers an accompanying “debt report card” that shows how healthy your debt is based on your age and retirement goals. This debt report card takes three factors into account:

• Age: DebtScore.com models how much debt you should pay off depending on your current age and anticipated retirement age.

• Income growth: If you’re in a profession in which your income will grow quickly every year, you’re in a better position to manage a certain level of debt payments than someone whose income is likely to grow at a lower rate.

• Student debt: College is an investment that can increase your earnings but increases your debt burden. Because of the impact on earnings, a college graduate may be able to afford the higher debt payments coming from student debt.

Taking all these factors into account, DebtScore.com creates your personalized debt report card that shows how healthy your debt really is.

AraLifestyle.com