What is Debt-to-Income Ratio?

Your debt-to-income is a very important part of your credit used by lenders to evaluate how financially stable or comfortable you would be while taking on a new debt. What this does is it compares your monthly debt payments to your monthly income. This measurement allows lenders to see how easily or difficult it would be for you to add another monthly payment.

Its calculated very simply. For example, if you pay $700 for your mortgage, $300 for your vehicle, $100 in credit cards, and $400 in all your other monthly debt. Your monthly debt would be $1,500. Let’s suppose your annual salary before taxes is $50,000, they divide that by 12 to find your monthly gross which in this example would be $4,166. Finally, you want to divide your monthly debt ($1,500) by your monthly gross income ($4,166). In this example, your debt-to-income ratio is 36%. What this mean is that 36% of your monthly income goes to your debt while 64% of your income is left over for other monthly costs or expenses.

The reason debt-to-income ratio is so important is because depending on the type of loan or new debt you are trying to acquire it may stop you from qualifying regardless of your credit score. While some lenders will accept ratios up to 50% others may cap the limit at 36%. The lower your ratio and high credit score the more potential you have of qualifying for your new debt.

Remember, your credit and whether or not you qualify for new loans or debt is not just based off of your credit score. There are so many factors regarding your credit that you have to take into consideration when you are getting ready to apply for new debt. This is especially important when you are getting ready to purchase a home.

Should you need help figuring out what your debt-to-income ratio is or perhaps you are getting denied new debt even with a high credit score. WE CAN HELP!

We can definitely help each and EVERY situation, please give us a call at 844-FIX-URCR or creditservicesofamerica.com to schedule your FREE consultation!

*Individual results may vary. Please call for more details and to discuss your own individual situation.

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