Understanding Your Debt to Income Ratio

Understanding Your Debt to Income Ratio

Although your debt to income (DTI) ratio doesn't directly affect your credit score, it is a key component of your credit health and can play a role in your credit application when you are applying for a major loan or mortgage.

What is my debt to income ratio?

Your DTI ratio helps lenders evaluate how much additional debt you can handle and how much of a credit risk you pose. It is generally calculated by dividing your monthly income by your total monthly debt payments, including minimum credit card payments, auto loan and student loan payments and any other regular debt obligations. Your income isn't reported in your credit report, so as part of a loan application, lenders will often request either a self-reported estimate or documentation confirming income.

Although your DTI ratio isn't one of the key factors that calculate your credit score, it can have a significant impact on your ability to get credit.

How does my DTI ratio impact my credit?

For certain loans like mortgage loans, lenders scrutinize your DTI ratio when you are applying for credit because it helps them evaluate your ability to repay your debts. Lenders tend to set your interest rates according to the risk you pose.

If your DTI ratio is low, then you are more likely to have the income necessary to repay your debts. If your DTI ratio is high, then you may be overwhelmed by debt and unable to pay back new debt obligations. The standard rule of thumb is that your DTI ratio should be less than 36 percent. Keep in mind that a DTI ratio as high as 36 percent could put you at risk of paying higher interest rates or being denied altogether. The Consumer Financial Protection Bureau also highlights 43 percent as an important number because it is generally the highest debt-to-income ratio a consumer can have while still being eligible for a Qualified Mortgage.

If you want a quick picture of what your debt to income situation should generally look like, try this simple calculation. Approximate your monthly gross income and multiply that number by 36 percent. For example, if you have a $2,200 monthly gross income:


$2200 (Gross monthly income) X .36 (Generally recommended maximum DTI)

= $792 (Amount your total monthly debt payments should generally not exceed)


This calculation gives you a quick guideline of what a comfortable debt load looks like for your monthly income.

What if my DTI ratio is too high?

If your DTI Ratio is higher than you'd like, the two ways to lower it are to increase your income or lower your debt payments. With extra time, you may be able to take on a second job. Already doing well at work? Try making a case for a raise. To lower your total monthly debt payments, consider fully paying off loans or credit cards, refinancing your loans to lower your individual monthly payments or consolidating your debt.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

All Comments

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1 Contribution
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Helpful to 150 out of 174 people

Where does credit karma obtain my income amount to compute the DTI? I couldn't fine anywhere on their site where I can supply that info.

Reply by
gmc91

1 Contribution
11 People Helped
Helpful to 11 out of 12 people

I know this is very late, but I just now stumbled upon this page... I found that if you click on your personal information (located at the top of the page with your username - drop down menu), you can edit your annual income.  This should change your DTI.  As for the incorrect debt some people are commenting on, I do not have an answer to that.  I am new here, and I am learning as I go.

Reply by
Reneedeniseblaze

2 Contributions
67 People Helped
Helpful to 61 out of 76 people

If you go to your Credit Report Card, you will get "grades" for things like; utilization, on-time payments, age of accounts, ect. At the bottom of that list is Debt To Income Ratio and a place to input your Reported Monthly Household Income

Reply by
gonzomic

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36 People Helped
Helpful to 36 out of 46 people

on the My Credit tab, go to Credit Report Card, scroll down to DTI. enter gross monthly and save

5 Contributions
42 People Helped

Helpful to 28 out of 30 people

Not mentioned in this article is one more reason to keep your DTI as low as possible: if your income is unexpectedly reduced, a low DTI will reduce any adverse effect on your credit score. Essentially, it is a prophylactic (protective) measure against downturns in your personal finance situation.

Reply by
shellnlq

1 Contribution
15 People Helped
Helpful to 15 out of 17 people

Thanks for the additional info. That is good to know

1 Contribution
7 People Helped

Helpful to 7 out of 7 people

Make sure if applying for credit card, use the card and pay off balance in few months or when u can.faster the better!

6 Contributions
13 People Helped

Helpful to 9 out of 10 people

If you are an authorized user on someone else's account, does this show up as your credit also? 

2 Contributions
7 People Helped

Helpful to 7 out of 9 people

No matter what value I put in as my monthly income it always shows $1,250 and also says my monthly debt is $791 for DTI of 63% (a terrible score).  My income is >$10k a month and I have no debt other than mortgage so I'm not sure how to get this piece working.  When I go to the screen to enter my income, it shows what I typed in last - but the score center refuses to show anything but the $1250/$791 number.  :-(  Ideas?

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