This article was originally published on October 22, 2024, and was updated as of October 6, 2025 to reflect timely credit information.
Key takeaways about your debt-to-income ratio:
Debt-to-income ratio (DTI) compares your monthly debt payments to your gross monthly income.
Lower DTI = stronger approvals and better interest rates.
Higher DTI can signal risk to lenders and limit borrowing options.
Managing DTI well can improve your credit profile and overall borrowing power.
A certified, nonprofit credit counselor through CredEvolv can help you build a plan to lower DTI and stay on track.
When it comes to managing your finances, one of the most significant numbers to keep an eye on is your debt-to-income ratio, or DTI. It might sound technical, but your DTI plays a huge role in shaping your financial health – especially if you’re trying to build or maintain good credit and be smarter about your borrowing.
In fact, understanding and managing your DTI could be the difference between getting approved for a loan with favorable terms and facing roadblocks on your financial journey.
Let us walk you through what debt-to-income ratio is, why it’s important, and how maintaining a healthy balance between debt and income can improve your credit score and borrowing power. Plus, we’ll explain how partnering with a certified, nonprofit credit counselor through the CredEvolv platform can help you achieve an ideal DTI and stay on the path toward financial wellness.
What is debt-to-income ratio (DTI)?
Debt-to-income ratio is the percentage of your gross (pre-tax) monthly income that goes toward required debt payments. Lenders use DTI to evaluate ability to repay, affordability, and approval risk.
DTI formula: (Total required monthly debt payments/Gross monthly income)*100
What to include in monthly debt payments:
Mortgage or rent
Credit card minimums
Auto loans and leases
Student loans
Personal loans and installment loans
Alimony or child support (if applicable)
For example, if you pay $2,000 a month toward debt and earn $5,000 before axes, your DTI would be 40%.
It may seem counterintuitive, but carrying some debt can actually benefit your credit score – if it’s managed wisely
What is a “good” DTI for loan approval?
Lenders look at your DTI ratio to gauge how much of your income is already tied up in debt payments. A lower DTI signals to lenders that you have room in your budget to take on more debt without overextending yourself. On the other hand, a higher DTI might raise red flags, suggesting you could struggle to manage additional monthly payments.
While each lender and program differs, these guideposts are common:
Below 36% – Generally considered strong and manageable.
36% to 49% – Often acceptable, but you may not get the best terms.
50%+ – Frequently high risk – loan options narrow and rates can rise.
Tip: Even if your credit score looks strong, a high DTI can still block approval or increase your interest rate.
Can having some debt actually help your credit score?
Yes – when managed responsibly. Credit scores value on-time payments, low utilization, and healthy credit mix.
Credit mix helps – A blend of revolving (credit cards) and installment (auto, student, mortgage) credit shows you can manage different types of obligations.
Open tradelines with on-time payment history demonstrate reliability.
Low utilization on credit cards (aim for under 30%, often under 10% is stronger) supports higher scores.
Why keeping DTI manageable matters?
While having some debt can help your credit score, it’s important to keep your DTI ratio in check. When debt starts to outweigh your income, it can become difficult to manage monthly payments, leading to late or missed payments. That can hurt your credit score and cause stress.
Here are a few reasons why maintaining a healthy DTI ratio is crucial:
Protect your credit score – High DTI can lead to missed payments and score drops.
Lower interest costs – Better DTI can unlock lower APRs and better terms.
Avoid the debt spiral – High DTI makes it hard to pay more than minimums – balances can rise and progress stalls..
How to lower your debt-to-income ratio?
1. Reduce debt payments
Target high-interest revolving balances first – lowering utilization can quickly help both DTI and credit score.
Negotiate with creditors – hardship programs or temporary modifications can reduce required payments.
Consider a strategic consolidation – a lower-rate installment loan can replace multiple high-interest payments. Use carefully.
2. Increase gross income
Overtime or a side income can shift the ratio in your favor.
Document all verifiable income lenders can count – salary, bonuses, consistent gig income.
3. Sequence new credit wisely
Avoid adding new payments before a major loan application.
If you must open new credit to build history, keep balances low and pay on time.
4. Build a realistic budget
Map fixed vs variable expenses – then reallocate cash flow to high-impact paydowns.
Automate payments to avoid late fees and protect your score.
How a HUD-certified, nonprofit credit counselor can help?
Working with a nonprofit credit counselor via CredEvolv gives you a co-managed plan that prioritizes measurable DTI improvements and credit health.
Personalized Debt Management Plan (DMP) – structure payments, potentially lower rates or fees, and create a clear path to reduce required monthly obligations.
Budget and cash-flow coaching – align spending with goals, protect on-time payments, and accelerate targeted paydowns.
Education and accountability – understand utilization, score factors, dispute processes for inaccurate items, and best practices for sustainable progress.
Progress tracking – see changes in DTI, balances, and credit profile over time – celebrate wins and adjust when life happens.
Your path forward
Your debt-to-income ratio is a key indicator of your financial health. Finding the right balance is essential for maintaining a good credit score and gaining borrowing power. By understanding how to manage your debt responsibly – and knowing when to seek help from a certified credit counselor on the CredEvolv platform – you can achieve a brighter financial future.
Remember, having some debt isn’t necessarily a bad thing. In fact, when managed wisely, it can help you build credit and demonstrate responsible borrowing. But keeping your DTI in check is crucial to avoid falling into financial trouble.
If you ever feel like your debt is starting to weigh you down, don’t hesitate to reach out to CredEvolv so we can connect you to a certified, nonprofit credit counselor. With the right guidance and a solid plan, you can lower your DTI, improve your credit score, and take control of your finances – both now and in the future!
