How to Calculate a 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.

  • 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.

  • 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.

  • Divide your total monthly debt obligations by your total monthly income. This is your total debt-to-income ratio.

  • 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.

Tips & Warnings

  • 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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