Debt To Income Ratio And The Effect On Your Credit Rating
The debt to income ratio also known as DTIR is calculated using the payment you pay towards your total debt as a percentage of your total gross income. Lenders use the ratio to determine how much you can borrow based on payments such as insurance, property tax, unsecured financing etc.
How To Calculate Your DTIR:
The ratio is expressed as a percentage, and can be calculated by dividing your monthly payments on your long term debts by your gross monthly income.
As a working example, if your total debt payment stands at $1375 per month and your gross income is $3125 per month, to calculate your percentage, divide $1375 by $3125. This would give you a DTIR of 44%.
According to mortgage news daily the recommended acceptable ratio is 35%. This is broken down into two parts, 25% for home related expenses and 10% for all other expenses.
Keep A Low Debt To Income Ratio:
Having a low DTIR is important as your ratio is used to determine your credit worthiness. A lender would hesitate to lend to you if your ratio is high as it would indicate that you may have trouble paying your debts in the future. This could be problematic when it comes to purchasing major items such as your home.
When your DTIR is high, you do not attract the lowest interest rates on credit cards and other credit facilities; this is because the lender sees you as a default risk and would charge you a higher rate to protect their business.
Managing Your Credit Card Debt To Reduce Your DTIR:
A major expense that contributes to your DTIR percentage is your credit card debt. If your ratio is near or above the acceptable limit, then you must take action to reduce it. The following tips would therefore be useful to you.
1. Approach your credit card provider to get a reduced interest rate. You would need to meet the lenders criteria such as having a good credit rating, prompt bill payments etc. in order to qualify, but it is worth looking into.
2. Use your credit card for necessary purchases only. Charging all your day to day purchases on your credit card pushes the balance and your minimum payment up. This would adversely affect your DTIR as the debt payment increases, especially if your income remains the same.
3. Avoid extra charges, by paying your bill on time, every time. Stay within your limit at all times. To achieve a lower ratio; you must work at reducing your monthly expenses.
Debt reduction takes self control and sacrifice, but in the end, with reduced debts, you would have less monthly expenses and a lower debt to income ratio. This would open up the market for you to access financing for the larger necessities in life at a much better interest rate than you would if your rating were not in good standing.
Related Tags: balance transfer credit cards, 0% balance transfers, no balance transfer fee, best balance transfer
Apply for bank of america platinum visa or review and compare many more Balance Transfer Credit Cards at http://www.apply-for-a-credit-card-now.com
Your Article Search Directory : Find in ArticlesRecent articles in this category:
- The Beginning of the Cataloging Code
The first significant cataloging code was published in 1841. The realization that cooperation and s - In the Lap of the Gods 24
Life moved on. Lily became well liked by both students and staff because of her cheerful outlook on - In the Lap of the Gods 23
Does fate decide the future? Is it all mapped out for us, predestined, or can we influence what com - Write Your Memoir: How to Write About What Troubles You the Most
Everyone has a story to tell, and unfortunately those stories aren't always pleasant. What makes me - How Crafty Word Order Can Instantly Improve Your Writing
by Philip Yaffe I am usually very reticent about offering writing tips. Unless they are linked to - You Say Grandpa, I Say Deda
I was born with two grandmothers but only one grandfather. In nature's rules of familial supply and - My Russian American Dichotomy
I was a Russian girl and an American teenager. I had no choice about the first but I tried very har - In the Lap of the Gods 22
This is just an explanation for those who have read some of the other Chapters of, "In the Lap of t - Write a Book: 8 Reasons You Should Do it
Studies have shown that 82% of people want to write a book, but few of these actually ever achieve - Book Review: the Book of Common Prayer
Book Review: The Book of Common Prayer, "My carry-with-me copy is this size, and I recommend it for
Most viewed articles in this category:
- Real Estate Investment - Investing In Commercial Properties
As in any other type of investment, its obviously advisable to do your research well so that the pro - Taking Care Of Acne Prone Skin With Proper Skin Care Products
Although acne has been largely associated with teeners and puberty, the condition is not only confin - Do I Really Need Eight Hours Of Sleep Each Night?
What if you were told that there is no definitive answer for why we need to sleep? Your initial reac - How to Improve Your FICO Credit Score
If you didn't know this already, having a good credit score is more important than having a lot of c - 10 Tips for a Magnificent Memory
"Where did I leave my keys?" "What did I come in here for?" "Your glasses are on top of your head!" - Things You Might Like To Know About Card Companies
If you have a regular income and are 18 or over then you may be able to get a credit card. You will - Bad Breath in Babies and Toddlers
If your baby or toddler has had bad breath lately, not to worry. There are plenty of things you can - Starving College Students No More
The majority of today's college students are extremely Internet savvy. In fact, many of those studen - Cosmetic Surgery Financing: How Can You Get It?
Cosmetic surgery, a branch of plastic surgery, can be quite expensive, especially if you are plannin - Article Marketing, Improve Your Ranking With Links
Article Marketing, without a doubt remains the best free formula for attracting website traffic. At
