What exactly is a debt-to-income ratio and how do lenders use it?
Debt-to-income ratio is the percentage of your income you use to pay your debts. Lenders use your debt-to-income ratio as an indicator of your ability to repay debt and generally regard 35% and below as the most favorable ratio. In other words, it appears that you have a higher likelihood of repaying your debt. The higher your ratio, the more of a credit risk you become. If your debt-to-income ratio is over 36%, you may have trouble finding affordable credit, but often lenders may evaluate other circumstances and may still have loan products appropriate for your finances.
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