A rule of thumb to determine how much credit you can take on is to compare how much you owe with how much you earn. The amount you owe, or debt, can include monthly payment loans such as auto and home loans, and credit card debt. A simple calculation based on these two parameters is called the debt-to-income ratio.

	Calculating your debt-to-income ratio
	Monthly debt repayments = $800 Monthly take-home pay = $3,200 Debt-to-income ratio = $800/$3,200 = 0.25

With the above monthly expenses and take-home pay, you would have a debt-to-income of 25%. Because debt-to-income is a ratio that can statistically be applied across all households all over the world, lenders have a huge database from which they can draw inferences about your financial well-being based on this ratio.

The rest of your income is for dealing with daily expenses such as groceries and transport, as well as for your savings. A high debt-to-income ratio could mean that you will be denied further credit or you will have to pay a higher interest rate if you take on more credit.