Your credit score shows how you’ve handled debt. Your debt-to-income ratio shows how much room your budget has for more.
Quick summary
- Debt-to-income ratio (DTI) is your monthly debt payments divided by your gross monthly income.
- DTI isn’t part of your credit score, but lenders use it to judge affordability.
- Many lenders prefer a DTI of 36% or less, though limits vary by loan type.
- Paying down debt or increasing income lowers your ratio.
Lenders want to know two things: whether you’ve repaid debts reliably and whether you can afford a new payment. Your credit score answers the first question. Your debt-to-income ratio, or DTI, helps answer the second.
How to calculate it
DTI = total monthly debt payments ÷ gross monthly income × 100.
| Monthly payment | Amount |
|---|---|
| Rent or mortgage | $1,200 |
| Car loan | $350 |
| Student loan | $150 |
| Credit card minimums | $100 |
| Total | $1,800 |
With a gross income of $5,000 a month, the DTI is $1,800 ÷ $5,000 = 36%.
Front-end and back-end DTI
Mortgage lenders often look at two figures:
- Front-end ratio: housing costs only, such as mortgage payment, property taxes and insurance, divided by income.
- Back-end ratio: all monthly debt payments, including housing, divided by income.
What lenders look for
There’s no single limit, but as a rough guide:
- 36% or less: generally comfortable for many lenders.
- Above 43%: many mortgage lenders become more cautious, though some loan programs allow higher ratios with strong credit or savings.
- 50% or more: most of your income is already committed, so new credit is harder to get.
Worth knowing
DTI doesn’t appear on your credit report and doesn’t affect your credit score. A high score with a high DTI can still lead to a smaller loan or a decline.
Ways to lower your DTI
- Pay down balances, especially those with high minimum payments.
- Avoid new debt before a major application.
- Increase documented income, such as a raise or steady side income you can prove.
- Refinance carefully: a lower payment can cut DTI, but a longer term may cost more overall.
Quick tip
Work out your DTI before applying for a mortgage or car loan. If it’s high, a few months of paying down debt can change what you’re offered.
Looking at the full picture
DTI and your credit score work together. Lower balances also improve your credit utilization, which can lift your score at the same time. If your debts feel unmanageable, our guide to debt management plans explains how a nonprofit credit counselor can help.
Reader questions
Which debts count toward DTI?
Usually recurring debt payments such as housing, car loans, student loans, minimum card payments and personal loans. Everyday bills like groceries and utilities usually don’t count.
Do lenders use income before or after tax?
Most use gross monthly income, before taxes and deductions.
Is a lower DTI always better?
For lenders, generally yes. A lower ratio leaves more room in your budget if your income drops or costs rise.
This article is general information, not financial or legal advice. Scoring models, lender policies and laws change, and state rules vary. Check official sources such as the Consumer Financial Protection Bureau and the Federal Trade Commission, and consider a nonprofit credit counselor for help with your own situation.