- The debt-to-income ratio measures monthly debt payments compared to monthly income, often expressed as a percentage. For example, $300 debt and $1000 income is a 30% debt ratio.
- A lender usually wants to see no more than 36% of a person's monthly income tied up in monthly debt payments.
- A lender will look at the debt-to-income ratio in relation to the person's income, FICO score, investments and assets when determining ability to repay a loan.
- If your debt ratio is above 30%, you may be considered a high risk for new loans, causing the lender to charge higher interest or deny credit altogether.
- A low debt ratio can help you. Someone with a poor FICO but a low debt to income ratio will be considered less of a risk than someone with the same FICO and a higher ratio.
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