What is a Good Debt-to-Income Ratio? (2024)

In addition to your credit score, your debt-to-income (DTI) ratio is an important part of your overall financial health. Calculating your DTI may help you determine how comfortable you are with your current debt, and also decide whether applying for credit is the right choice for you.

When you apply for credit, lenders evaluate your DTI to help determine the risk associated with you taking on another payment. Use the information below to calculate your own debt-to-income ratio and understand what it may mean to lenders.

Our standards for Debt-to-Income (DTI) ratio

Once you’ve calculated your DTI ratio, you’ll want to understand how lenders review it when they’re considering your application. Take a look at the guidelines we use:

What is a Good Debt-to-Income Ratio? (1)35% or less: Looking Good - Relative to your income, your debt is at a manageable level

You most likely have money left over for saving or spending after you’ve paid your bills. Lenders generally view a lower DTI as favorable.

36% to 49%: Opportunity to improve

You’re managing your debt adequately, but you may want to consider lowering your DTI. This could put you in a better position to handle unforeseen expenses. If you’re looking to borrow, keep in mind that lenders may ask for additional eligibility criteria.

50% or more: Take Action - You may have limited funds to save or spend

With more than half your income going toward debt payments, you may not have much money left to save, spend, or handle unforeseen expenses. With this DTI ratio, lenders may limit your borrowing options.

What is a Good Debt-to-Income Ratio? (2)

Use our calculator to check your debt-to-income ratio


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This calculator is for educational purposes only and is not a denial or approval of credit.

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What is a Good Debt-to-Income Ratio? (2024)

FAQs

What is a Good Debt-to-Income Ratio? ›

Your debt-to-income (DTI) ratio is how much money you earn versus what you spend. It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”

What is an acceptable income to debt ratio? ›

35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.

Is a 50% debt-to-income ratio good? ›

A general rule of thumb is to keep your overall debt-to-income ratio at or below 43%. This is seen as a wise target because it's the maximum debt-to-income ratio at which you're eligible for a Qualified Mortgage —a type of home loan designed to be stable and borrower-friendly.

Is a 20% debt-to-income ratio bad? ›

35% or less is generally viewed as favorable, and your debt is manageable. You likely have money remaining after paying monthly bills. 36% to 49% means your DTI ratio is adequate, but you have room for improvement.

Is 7% a good debt-to-income ratio? ›

Lenders, including anyone who might give you a mortgage or an auto loan, use DTI as a measure of creditworthiness. DTI is one factor that can help lenders decide whether you can repay the money you have borrowed or take on more debt. A good debt-to-income ratio is below 43%, and many lenders prefer 36% or below.

What is the average debt-to-income ratio in the US? ›

The Federal Reserve tracks the nation's household debt payments as a percentage of disposable income. The most recent debt payment-to-income ratio, from the third quarter of 2023, is 9.8%. That means the average American spends nearly 10% of their monthly income on debt payments.

How to lower debt-to-income ratio quickly? ›

Pay Down Debt

Paying down debt is the most straightforward way to reduce your DTI. The fewer debts you owe, the lower your debt-to-income ratio will be. Suppose that you have a car loan with a monthly payment of $500. You can begin paying an extra $250 toward the principal each month to pay off the vehicle sooner.

Does a mortgage count in the debt-to-income ratio? ›

These are some examples of payments included in debt-to-income: Monthly mortgage payments (or rent) Monthly expense for real estate taxes. Monthly expense for home owner's insurance.

Does rent count in debt-to-income ratio? ›

Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. Specifically, it's the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt.

What is the debt-to-income ratio for a FHA loan? ›

According to the FHA official site, "The FHA allows you to use 31% of your income towards housing costs and 43% towards housing expenses and other long-term debt." Those percentages should be examined side-by-side with the debt-to-income requirements of a conventional home loan.

Is 20k in debt a lot? ›

“That's because the best balance transfer and personal loan terms are reserved for people with strong credit scores. $20,000 is a lot of credit card debt and it sounds like you're having trouble making progress,” says Rossman.

How much credit card debt is too much? ›

The general rule of thumb is that you shouldn't spend more than 10 percent of your take-home income on credit card debt.

Is rent considered debt? ›

Rent is an expense of living which is normally paid monthly on the first day of the month. If you haven't paid your rent by the second day of the month, it would be considered a debt.

What is the 28 36 rule? ›

According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance. Private mortgage insurance.

What is a good credit score? ›

Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.

Which on-time payment will actually improve your credit score? ›

Paying off your credit card balance every month is one of the factors that can help you improve your scores. Companies use several factors to calculate your credit scores. One factor they look at is how much credit you are using compared to how much you have available.

Is 46% a good debt-to-income ratio? ›

What Is A Good Debt-To-Income Ratio? Most lenders will accept a DTI ratio of 43% or less. However, it's helpful to understand how different ranges can impact your chances of approval when applying for a mortgage.

Is 30% debt ratio good? ›

A debt ratio between 30% and 36% is also considered good. It's when you're approaching 40% that you have to be very, very vigilant. With a threshold like that, you're a greater risk to lenders. You may already be having trouble making your payments each month.

Is 21 a good debt-to-income ratio? ›

This includes cumulative debt payments, so think credit card payments, car payments, student loans, personal loans and any other debt you may have taken on. According to a breakdown from The Mortgage Reports, a good debt-to-income ratio is 43% or less.

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