4.3 learning

Debt to Income Ratio

1 CE

One of the measures of debt load is the debt-to-income ratio. Commonly used to determine if the household qualifies for a mortgage or loan. When writing loans, lenders will evaluate an applicant's ratio to determine the risk of repayment. This leaves very little money to pay for unplanned expenses as well as household necessities such as food.

Formula to Determine DTI

1 CE

Monthly debt payments include payment on mortgages or rent, auto loans, minimum payment on credit card. Monthly gross income is the income before tax for the month. Contribution to charity and advance for furniture are non-recurring payments that are not related to loans so they don't count towards debt.

Understanding a Credit Score

1 CE

Pay your bills on time. One way to make sure your payments are on time is to set up automatic payments, If you miss payments, get current. A long credit history will help your score. Credit scores are based on experience over time. The more experience you have with getting credit and paying your bills on time the better. Only apply for credit that you need.