Does this debt to income ratio include the home mortgage? And is this ratio pre or post-tax?

How about the cars? Thanks.

 

Generally speaking, this is used by financial institutions to establish credit worthiness and mostly used when applying for mortgages. It is typically done with simple math using gross income against all outstanding debt, including cars, mortgage(s), credit cards, unsecured/secured loans, etc.

General acceptable debt-to-income ratios is 33/38 meaning that housing expenses can't exceed thirty-three percent of your monthly income. Your total monthly payment can take no more than thirty-eight percent. There is math involved and if you have a decent down payment (20-30%)and/or excellent credit, these numbers flex.

 

You know what was weird? When I lived in America, I opened a bank account for my salary to be paid into and after a while took their offer of a credit card but I never used it. After a couple of years they asked me if I wanted a free credit check (some law had allowed up to 3 free credit checks or something). I got one and it wasn't perfect. I asked why and they said something about me not having had any debts. So apparently, having debts and paying them off on a regular basis is better than not having any at all. How strange is that?

 

In a way that makes sense.

If one never has had any debt [never used credit] it would be difficult to establish credit worthiness.

sixcard

 

You'll probably have also suffered through having a short credit history in addition to sixcard's point in his post. The model here is based on predictability and precedent - anyone with too short a history, or anyone without a verifiable ability to manage debt, is going to struggle. It's not how responsible or careful you are or may be, - it's all about your ability to demonstrate it.

 

Not strange at all. It would be like hiring a "great" footballer who has never played a game.

 

25% is considered excellent and financially fiscal

you also get better offers and interest rates

 

I see your points, but I forgot to mention, I had over $50k in a savings account with them and it was going up and up by a few thousand a month. I understand though that the credit rating is a points based system. Everything you do is either positive or negative towards your score. Taking out a loan and paying it on time gives you extra plus points. Doing nothing doesn't add any points.

I feel like I've hijacked this thread and I'm feeling guilty for it.

 

$50K in savings doesn't mean anything in this case. If you never used credit, the credit unions probably don't even know about you or the $50K.

sixcard

 

Glad I don't have any plans to take on any kind of credit in the future then. Having not had any since about 1991 I might struggle to get any (except from my own banks).