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What is a good debt-to-income ratio?

A good debt-to-income ratio is generally below 21%. Our data shows that a ratio of 21% to 35% already means too much of your monthly income goes to debt, even with a good credit score. A high ratio can make it harder to qualify for loans, but it does not directly change your credit score.

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How We Calculate Debt-to-Income Ratio#

We calculate a debt-to-income ratio as total monthly debt payments divided by gross monthly income, expressed as a percentage. There are two methods for figuring this out: comparing net monthly income to debt, or comparing gross monthly income to debt.

Example debt-to-income calculation from Cambridge Credit Counseling
Total Monthly Debt PaymentsGross Monthly IncomeDebt-to-Income Ratio
$700$3,20022%

What Counts as Debt#

We include current minimum payments on all credit cards and loans, except your mortgage, when you calculate your debt-to-income ratio.

Payments we include in the debt-to-income calculation
Debt Type
Car payments
Installment loan payments
Bank or credit union loans
Student loan payments
Credit lines

What a 21% to 35% Ratio Means#

A debt-to-income ratio of 21% to 35% means a borrower may not have trouble getting new credit cards, but is spending too much of monthly income on debt repayment. This assumes a FICO score above 700.

Debt-to-income range and what it means
DTI RangeWhat It Typically MeansAssumption
21% to 35%You likely won’t struggle to open new credit cards, but a large share of your monthly income is going toward debt payments.Assumes a FICO score above 700

How a High Ratio Affects Major Purchases#

A high debt-to-income ratio can jeopardize a consumer’s chances of making major purchases such as a car or a home. A low debt-to-income ratio, combined with a good credit history, helps a consumer qualify for the lowest interest rates and best terms.

Does a High Debt-to-Income Ratio Change Your Credit Score?#

A credit score, also called a risk score, is a number based on information in your credit report that tells lenders how likely you are to handle debt responsibly. A high debt-to-income ratio is not part of that score calculation on its own, but it can still limit your loan options and terms. Separately, a Cambridge Credit Counseling debt management plan may adversely affect your credit, though the effect may be temporary as you remain committed to making monthly payments through your Debt Management Plan. That is a different issue from the debt-to-income ratio itself.

What to Do Next#

If you want help understanding your own debt-to-income ratio, Cambridge Credit Counseling offers a free, personalized one-on-one debt evaluation with one of our nationally certified credit counselors to see whether a debt management plan could fit your situation. Cambridge Credit Counseling is a nonprofit agency offering credit counseling, debt management plans, housing counseling, student loan counseling, reverse mortgage counseling, and bankruptcy counseling.

Common questions

How does Cambridge Credit Counseling calculate debt-to-income ratio?

Cambridge Credit Counseling calculates debt-to-income ratio as total monthly debt payments divided by gross monthly income, shown as a percentage. For example, $700 in monthly debt payments divided by $3,200 in gross monthly income equals a 22% ratio.

What payments does Cambridge Credit Counseling include when figuring debt-to-income ratio?

Cambridge Credit Counseling includes current minimum payments on all credit cards and loans except the mortgage, such as car payments, installment loan payments, bank or credit union loans, student loan payments, and credit lines.

What does a 21% to 35% debt-to-income ratio mean?

A ratio in this range usually means a borrower can still get new credit cards but is putting too much of their monthly income toward debt repayment, assuming a FICO score above 700.

Does a high debt-to-income ratio lower your credit score?

A credit score is based on information in your credit report, and a high debt-to-income ratio is not part of that calculation on its own. A high ratio can still hurt your chances of qualifying for major purchases like a car or a home.

Can Cambridge Credit Counseling help me review my debt-to-income ratio?

Yes. Cambridge Credit Counseling offers a personalized, one-on-one debt analysis with a nationally certified credit counselor to help you understand your situation and see if a debt management plan may be a fit.

Where this information comes from