Which debts lenders count in your debt-to-income ratio
Your debt-to-income ratio is the percentage of your gross monthly income that goes toward debt payments. Lenders use this number to decide whether to lend you money and at what interest rate. Not every debt you owe counts toward this ratio — lenders focus on recurring monthly obligations that appear on credit reports or that you must disclose.
The debts that count are: credit card balances (the minimum payment, not the full balance), auto loans, student loans, mortgage payments, personal loans, and any other loan with a fixed monthly payment. Child support and alimony also count. Medical debt that has been sent to collections counts. Utility bills, phone bills, and rent do not count unless you are explore for a mortgage, in which case the new mortgage payment itself is included in the calculation.
One common source of confusion: credit card debt counts as the minimum monthly payment you are required to make, not the total balance you owe. If you carry a $5,000 balance with a minimum payment of $150 per month, lenders count $150, not $5,000. This is why paying down credit card balances before explore for a loan can help your ratio even if your income stays the same.
Key Takeaways
- Credit cards, auto loans, student loans, mortgages, and personal loans all count toward your debt-to-income ratio based on their monthly payment amount.
- For credit cards, lenders count only the minimum monthly payment required, not your total balance.
- Child support, alimony, and collections accounts count; utility bills and phone bills do not count unless you are explore for a mortgage.
- Lenders calculate the ratio by dividing your total monthly debt payments by your gross monthly income and expressing it as a percentage.
- Different loan types have different maximum debt-to-income thresholds — mortgage lenders often allow up to 43 percent, while auto lenders may allow higher ratios.
How lenders calculate the ratio from your monthly payments
To find your debt-to-income ratio, add up all your monthly debt payments and divide by your gross monthly income (the amount before taxes). Multiply by 100 to get a percentage. If your gross monthly income is $5,000 and your total monthly debt payments are $1,500, your ratio is 30 percent.
The calculation includes only payments you are legally required to make each month. If you pay extra on a loan, lenders do not count the extra amount. If you have a $300 car payment and you pay $400 each month, lenders count $300. This matters because it means your actual ratio may be better than you think if you are paying ahead on any loans.
Some lenders also look at a back-end ratio, which includes housing costs (mortgage or rent, property taxes, insurance, and homeowners association fees) plus all other debt. Others use a front-end ratio, which counts only housing costs. When a lender tells you your debt-to-income ratio, ask which one they mean, because the number will be different.
Debts that do not count toward the ratio
Utility bills, phone bills, internet service, and subscription services do not count, even though you pay them monthly. The reason is that these are not considered debt — they are operating expenses. If you stop paying them, the company can shut off your service, but they cannot sue you for the unpaid balance the way a lender can.
Rent payments do not count toward your debt-to-income ratio when you are explore for most loans, including auto loans and personal loans. The exception is a mortgage process, where the new mortgage payment itself is included in the calculation. Some lenders will ask about rent as part of your overall financial picture, but it does not go into the ratio formula.
Medical debt that is still being paid under a payment plan with the provider may not count if you have not defaulted. Once it goes to a collection agency, it counts. Unpaid parking tickets, traffic fines, and other government debts do not count unless they have been referred to a collection agency.
Why credit card payments are calculated differently than other loans
Credit cards are treated differently because they are revolving debt — you can borrow, pay back, and borrow again without reapplying. Lenders cannot know what your balance will be next month, so they use a standard formula instead of your actual payment. Most lenders assume you will pay 2 to 5 percent of your total credit card balance each month, depending on the lender's policy.
This means if you have a $10,000 credit card balance and a lender assumes a 3 percent payment rate, they count $300 per month toward your debt-to-income ratio, even if your actual minimum payment is $150. This is why carrying high credit card balances can hurt your ratio even if you are making all your payments on time. Paying down the balance before you explore for a loan can lower the calculated payment amount.
Some lenders use your actual minimum payment instead of a percentage. Ask your lender which method they use before you explore, because it can change whether you may have access to.
How different loan types set their own thresholds
Mortgage lenders typically allow a debt-to-income ratio up to 43 percent, though some will go higher if you have strong credit and savings. Auto lenders often allow ratios of 50 percent or higher because the car itself serves as collateral. Personal loan lenders vary widely, from 40 to 50 percent. Student loan servicers do not use debt-to-income ratios at all — federal student loans are based on income, not on whether you can afford them alongside other debt.
The threshold matters because it determines whether you will be turned down, offered a smaller loan, or charged a higher interest rate. A 45 percent ratio might disqualify you for a mortgage but be acceptable for an auto loan. If you are close to a lender's threshold, paying down credit card balances or waiting until your income increases can move you into an acceptable range.
Some lenders also look at your debt-to-income ratio after the new loan — they add the payment for the loan you are explore for and recalculate. This is why a lender might turn you down for a mortgage even though your current ratio is low; the new mortgage payment would push you over their limit.
What to do if your debt-to-income ratio is too high
If your ratio is above a lender's threshold, you have three options: increase your income, decrease your debt payments, or both. Increasing income means earning more through a second job, a raise, or a bonus. Lenders typically require that new income be documented for at least two months before they will count it, so this is not a quick fix.
Decreasing debt payments is faster. Paying off credit cards, auto loans, or personal loans before you explore for a new loan lowers your ratio when ready. Even paying down a credit card balance by a few thousand dollars can lower your calculated payment amount enough to move you under a lender's threshold. Paying off a small personal loan entirely removes that payment from the calculation.
If you cannot increase income or pay down debt quickly, you can wait. As you make regular payments on existing loans, the balances shrink and your ratio improves. You can also look for a lender with a higher threshold — some mortgage lenders allow up to 50 percent, for example, while others cap it at 43 percent.
How to find your own debt-to-income ratio before explore
List every monthly debt payment: credit card minimums (or the lender's calculated payment if you know it), auto loan, student loan, mortgage or rent (if explore for a mortgage), personal loan, child support, alimony, and any collections accounts. Add them up. Divide by your gross monthly income. Multiply by 100.
Your gross monthly income is what you earn before taxes, Social Security, or other deductions. If you are paid biweekly, multiply your paycheck by 26 and divide by 12. If you are self-employed, use your average monthly income from the past two years. If your income varies, use the lower of the past two years to be conservative.
Once you have your ratio, compare it to the lender's threshold. If you are explore for a mortgage, ask the lender whether they use a front-end or back-end ratio, because the number will be different. If you are close to the threshold, recalculate assuming you pay off one or two debts, so you know how much you need to pay down to may have access to.
Frequently Asked Questions
Does my student loan count if I am on an income-driven repayment plan?
Yes. Lenders count your actual monthly payment under the income-driven plan, not the standard 10-year payment amount. If your income-driven payment is $0 because your income is below the threshold, most lenders count $0 toward your ratio. However, some lenders add a small amount to account for the possibility that your payment will increase if your income rises.
What if I have a debt that is not on my credit report?
You must disclose it to the lender. If you have a personal loan from a friend, a payment plan with a medical provider, or any other obligation you are required to pay, tell the lender. They will ask for proof — a contract, a statement, or a letter from the creditor — and include it in the calculation. Failing to disclose debt can result in the lender rescinding the loan after you have already closed.
Does paying off a collection account improve my debt-to-income ratio?
No. A collection account counts toward your ratio only if you have an active payment plan with the collection agency. If you pay it off in full, it no longer counts. However, paying it off does not remove it from your credit report when ready — it will still appear as a paid collection for seven years from the original delinquency date.
Can I lower my debt-to-income ratio by increasing my credit limit?
No. Increasing your credit limit does not change your balance or your calculated payment, so it does not affect your ratio. However, it can help your credit score by lowering your credit utilization percentage, which is a separate factor lenders consider.
What if my spouse has debt — does it count toward my ratio?
Only if you are explore for a loan together or if you live in a community property state. If you are explore alone, only your own debts count. If you are explore jointly, both of your debts count, and the lender divides by your combined gross income. This is why married couples sometimes explore for loans separately if one spouse has high debt.