Debt-to-Income Ratio

Monday, June 28th, 2021
Updated: June 28th, 2021
The content is accurate at the time of publication and is subject to change.

In addition to the credit score and credit report, your debt-to-income (DTI) ratio is another important factor in your overall financial health. The debt-to-income ratio is the percentage of your gross monthly income that goes to paying your monthly debt and is used by lenders to determine the risk associated with you taking on another credit.

How to Understand Debt-to-Income Ratio?

Lenders use your debt-to-income ratio along with the credit history to estimate your ability to afford repayment and to pay off the debt.

The debt-to-Income ratio of 35% or less means that your debt is at a manageable level relative to your income. This debt-to-income ratio is favorable to lenders as you most likely have remaining money after you’ve paid your bills.

If your ratio ranges from 36% to 49%, you are managing your debt adequately, but you may want to consider lowering your DTI Ratio to obtain the loan or line of credit you want on better terms.

With more than 50% of your income going toward debt payments, you may not have much money left to save, spend or handle unforeseen expenses. With this DTI Ratio you become less attractive to the lenders, thus they may limit your borrowing options.

The maximum DTI Ratio varies from lender to lender. However, the lower the debt-to-income ratio, the better chances that you will be considered and then approved for the credit application.

How to Calculate Debt-to-Income Ratio?

To calculate your DTI Ratio, add up your minimum monthly debt payments then divide the total by your gross monthly income.

Debt includes your regular monthly payments on personal, student, car loans, mortgages or any other type of loan. Your monthly minimum credit card payments also count as debt, as do unpaid bills sent to collection agencies.

Your gross monthly income is the sum of everything you earn per month before taxes or deductions are imposed. This includes your basic monthly income and any additional commissions, bonuses and investment income that you earn each month. To calculate your gross monthly income, take your total annual income and divide it by 12 months.

How to Lower Debt-to-Income Ratio?

In order to get a loan on more favorable terms, you may want to lower your debt-to-income ratio. There are two ways to do that: by reducing your monthly recurring debt or by increasing your gross monthly income. Also, debt consolidation may help you get a better interest rate and pay down your balances sooner, as well as help lower your debt-to-income ratio.

Bottom Line

Thus, the debt-to-income ratio is another aspect that speaks of your financial well-being, which is considered by lenders when issuing various types of credit lines and loans. The debt-to-income ratio requirements can vary depending on the lender and the type of loan or credit you want to apply for. According to the specified algorithm, you can calculate your percentage and, if necessary, take certain measures in order to improve it.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

Latest Other Card Guides

Maxing Out Your Credit Card: What to Expect When You Go Over Your Credit Limit? January 26th, 2024

When it comes to obtaining а new line of credit, whether it’s a credit card, personal loan, mortgage, or any other way to borrow money, one of the most crucial aspects is the credit limit. Credit limit is the maximum amount you can charge on a particular credit card or other type of credit account. […]

Continue »
How to keep your money safe? Common types of bank accounts November 16th, 2023

Bank accounts offer a convenient and secure place to store cash and build savings. Savings and checking accounts are the most well-known types of bank accounts, but there are actually other options that financial institutions commonly offer. There are different types of bank accounts that can fit specific needs. Apart from Checking and Savings Accounts, […]

Continue »
The best alternative to payday loans: a Paycheck Advance Apps overview September 26th, 2023

If you need to make ends meet before your next paycheck, fast cash options like payday loans or installment loans are not your only options. Paycheck advance apps have been booming in the financial services industry in recent years, and the idea of an app that allows you to borrow money with low or no […]

Continue »
How to cope with the over-budget holiday debts? December 28th, 2022

The holiday season is a time when many Americans spend big on dearest friends, relatives, and themselves. During the festive fuss and buzz, it’s easy to fall into the urge to spend and buy more than you can afford. However, if you don’t want overspending to set you back financially in the new year, here’s […]

Continue »
What Are Electronic Payment Methods and How Do They Work? October 10th, 2022

If you frequently make online payments but remain concerned about your sensitive bank account details, virtual credit card or digital wallet services can give you the added layer of protection you need. A virtual credit card (VCC) is an online only version of your debit or credit card. It’s not a physical card, but a […]

Continue »
Best Credit Offer
Destiny Mastercard®
Check off the cards you want to compare. Then click the Compare link to go to the comparison table.
Consumer Rating: 4 / 5
Horizon Card Services Group One Freedom Card
Copyright © 2001-2024 All Rights Reserved.

See the credit card's terms and conditions on the online application page. Note that this website may be compensated by credit card issuers when the visitor applies for a card through the links on this website. We do our best to maintain all information accurate and up to date. However, we do not warrant the credit card information won't change. Click the "Apply Online" button and review the current info on the secure credit card terms page.

Information in these articles is brought to you by Banks, issuers, and credit card companies mentioned in the articles do not endorse or guarantee, and are not responsible for, the contents of the articles.

The webpage is a free service and an information resource for credit cards and financial products and services available to eligible United States consumers. does not offer any warranties and is not a direct service. There are no guarantees for approval or offers when applying for a credit card. Please refer to the application if you would like more information on each credit card. When you click "Apply" for a particular credit card, please take the time to review the terms and conditions of the product/service at the issuer's website. All logos on the website are property of their respective owners.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer. Opinions expressed here are the author's alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. Reasonable efforts are made to present accurate info, however all info is presented without warranty. Consult a card's issuing bank for terms & conditions. makes every effort to keep information up to date and accurate. However, the information regularly changes and is presented without warranty. Therefore, we strongly recommend all our readers to visit the credit card application page by clicking "Apply Online!" button to review the detailed credit card's terms and conditions. Note that may be compensated by the credit card issuers when the readers apply for a credit card through this site. is an independent, advertising-supported website which receives compensation from the credit card issuers and companies whose offers appear on the site. Compensation may impact how and where products appear on our site, including, for example, the order in which they may appear on the site pages. does not review or list all available financial or credit offers.

You've successfully subscribed!

Please specify the following:All these fields are optional

Thank you for providing this information! We will make sure our letters are useful for You.

User Generated Content Disclaimer: These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.