The Debt to Income (DTI) ratio is an indicator that measures the ratio of all the borrower’s financial liabilities to the net income. This ratio is used by banks to assess credit risk because it allows them to determine how much of their income a borrower needs to spend on repaying current liabilities. The lower the DTI ratio, the more likely the borrower will be able to repay the liability without problems.

According to the current recommendation of the Financial Supervisory Commission (FSC), the DTI ratio should be no more than 40% if the client has an income that does not exceed the average wage level in his region of residence, or no more than 50% in other cases.

Debt, or the sum of financial burdens, includes:

☝️ installments of currently repaid loans and credits

☝️ installment of the loan we are applying for

☝️ alimony, etc.

☝️ credit card limits

How to calculate the DTI ratio?

DTI = (total of all liabilities + potential loan installment) / net income * 100 percent.

The formula for calculating DTI is very simple. Just add together the amount of current liabilities and the estimated installment of the loan you want to apply for, and then divide the result by your monthly net income. The result obtained should be multiplied by 100.

If the DTI ratio is too high, you can improve the result by applying the following rules:

✅ repay loans

✅ reducing current payments

✅ reduce or close the limit on your credit card

✅ increase income