How much of your monthly income goes toward paying off debt, a key number lenders check.
Debt-to-income ratio compares how much of a person's monthly income goes toward debt payments, mortgage or rent, car loans, credit cards, student loans, against their total income before taxes. Lenders lean on it heavily when deciding whether to approve a mortgage or major loan, since it's a direct measure of how much financial room someone actually has. A household can have a great credit score and still get turned down for a loan if this ratio is too high, because it signals there's little cushion left if income drops or an unexpected expense hits.
Part of the Open Bell Glossary — plain-English explanations of the terms that come up on the show. Browse every term.