How to Calculate Your Debt-to-Income Ratio
Lenders use your debt-to-income ratio (how much you owe on credit cards and loans compared with how much you earn) to help evaluate your creditworthiness.
- Difficulty:
- Moderately Easy
Instructions
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1
Add up your total net monthly income. This includes your monthly wages and any overtime, commissions or bonuses that are guaranteed; plus alimony payment received, if applicable. If your income varies, figure the monthly average for the past two years. Include any monies earned from rentals or any other additional income.
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2
Add up your monthly debt obligations. This includes all of your credit card bills, loan and mortgage payments. Make sure to include your monthly rent payments if you rent.
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3
Divide your total monthly debt obligations by your total monthly income. This is your total debt-to-income ratio.
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4
Take action if your ratio is higher than 0.36, which industry professionals would call a score of 36. The lower the better. Any score higher than 36 may cause an increase in the interest rate or the down payment on a loan you apply for.
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Tips & Warnings
When you tally your total monthly debts, use the minimum payment on your statements.
When calculating your income, a lender will only consider money from a job that you've been at for at least two years.
Unreported earned income cannot be used in the calculation.
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Comments
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Not to undermine what you say here but lenders will use income from employment less than 2 years (In Texas anyway).
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This is a crock of ****- The excuses they give range from too many accounts active; too many inquiries for credit ratings; too much activity; too great a balnces of accounts -Well they never took into consideration that accounts were paid in timely fashion; finance charge plus payment protector charge, plus a hefty triple digit figure of at least $300 to principle on ALL accounts with nary a late payment, over limit or any other type of dufus charge incurred - What is that worth~?~? To them NADA
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mbhoakct76
May 12, 2008
Yes i agree this article is wrong. It is your gross income used - not net income. -
mbhoakct76
May 12, 2008
Yes i agree this article is wrong. It is your gross income used - not net income.
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mbhoakct76
May 12, 2008
Yes i agree this article is wrong. It is your gross income used - not net income.
