Why lenders care about this number
A credit score says how reliably you have repaid in the past. Your debt-to-income ratio says whether you can afford to repay in the future. A lender will look at both, and a strong score will not rescue an application where too much of the income is already committed.
The two ratios
Mortgage lenders usually look at two figures. The front-end ratio is housing costs alone as a share of income, and the traditional guide is 28% or less. The back-end ratio is all debt payments including housing, and that is the number most people mean by DTI. The calculator above gives you both.
Moving the number
The ratio counts monthly payments, not balances, and that changes the best strategy. Clearing one small debt entirely removes its whole payment from the calculation. Paying a little toward several large debts barely moves it at all, even if you pay the same total amount.
So if you are preparing to apply for a mortgage, the smallest balances are the ones to clear first — which is exactly what the debt snowball does. One more thing: do not open new credit in the months before applying. A new car loan can undo a year of careful paying down.
Common questions
- What is a debt-to-income ratio?
- The share of your gross monthly income that goes to debt payments. Add up every monthly debt payment, divide by your monthly income before tax, and multiply by 100. Lenders use it to judge whether you can take on more.
- What is a good debt-to-income ratio?
- Below 36% is comfortable. Up to 43% is generally still acceptable and is the usual ceiling for a qualified mortgage. Above 43% many lenders decline or price the risk into your rate.
- Which payments count?
- Rent or mortgage, car payments, minimum credit card payments, student loans, personal loans, and court-ordered payments such as child support. Groceries, utilities, phone bills, insurance and subscriptions are not counted — they are living costs, not debts.
- Gross or net income?
- Gross — your income before tax and deductions. It is what lenders use, so using take-home pay would give you a ratio that does not match theirs.
- How do I lower my ratio quickly?
- Clearing a whole debt removes its entire monthly payment from the calculation, so paying off one small balance moves the ratio faster than paying a little toward several. Raising income works too, but takes longer.