Feedback Form
Home Features Mastermind Videos About Advertise Blog Network Contact
   

Have A Suggestion?
Toronto Salsa Classes / Toronto Salsa Lessons Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
Have A Suggestion?

Featured Ebook


ebook Famous Entrepreneurs - Modern Empire Builders


Featured Ebook

More Evan Carmichael
More popular articles
- Why Accounting Outsourcing
Have A Suggestion?


Sales Lessons From Starbucks And Dell

FICO & Debt to Income Ratio Info



FICO & Debt to Income Ratio Info
   

FICO & Debt to Income Ratio Info

In the United States, a credit score is a number based on a statistical analysis of a person's credit files that represents the creditworthiness of that person, which is the likelihood that the person will pay their bills. A credit score is primarily based on credit report information, typically from one of the three major credit bureaus: Experian, Trans Union, and Equifax.

There are different methods of calculating credit scores. FICO is a credit score developed by Fair Isaac Corporation. It is used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender. The credit bureaus all have their own credit scores: Equifax's Score Power, Experian's PLUS score, and Trans Union's credit score, and each also sells the Vantage Score credit score.
Americans are entitled to one free credit report within a 12-month period from each of the three agencies. The three credit bureaus run Annualcreditreport.com, where users can get their free credit report, normally without credit scores. Credit scores are available as an add-on feature of the report, for a fee.

In some states, such as California and Colorado, a consumer is entitled to a free credit report within 30 days of being denied credit or receiving sub-normal credit terms from a lender, due to their credit rating.

The FICO credit score range is between 300 and 850.

Debt to income is a ratio of your total monthly debt payments to your total monthly income expressed as a ratio or percentage.

It is a rather simple calculation but it can be deceiving unless you include all debt and all income in the calculation.

The calculation of your debt to income ratio is a straightforward one. You simply divide your total monthly debt payments by your total net income (that is your income after taxes). While some debt is unavoidable and may even be desirable for achieving your financial goals the real question is how much debt is too much; just where do you draw the line. Obtaining credit is often a function of a loan officer calculating the debt to income ration as a way of determining your ability to meet new obligations.

Too high a debt to income ratio will also have a negative impact on your FICO score, often making credit obtained more expensive than it needs to be.

Below I suggest categories for inclusion in calculating your debt to income ratio to see where you stand.

Monthly Debt Payments to Consider:

· Mortgage or rent payments
· Payments on a home equity loan
· Car payments
· Student loan payments
· Minimum credit card payments times 2
· Other outstanding loan amount payments
· Child support payments

Monthly Income to Consider:

· Total net or take-home pay
· Child support or alimony payments received
· 1099 Income after taxes divided by 12
· Other monthly income

Now add up debt and income and divide.

The above list is only a guideline for gathering personal information. It may include every possible aspect of your debt/income but you may need to add categories or not use some of the categories in your calculation. If you add lines to your debt calculation do not include bills for services or products unless you have placed such bills under a payment plan such as establishing a fixed payment plan with your dentist. Under income do not include windfalls such as one time gifts, an insurance settlement, an inheritance or lottery winnings.

So now you have made the calculation. How can we answer the question how much is too much?
When applying for credit, the loan officer will look at your debt to income ratio as one factor in making a decision but it will not be the only factor considered.

The same debt to income ratio may be great for one family but may have a negative impact on another. Debt to interest ratios in the end is a subjective tool for loan officers to make decisions about your ability to meet a new obligation. There are some general guidelines, however, that will give you a reasonably solid picture of where you stand in the eyes of a loan officer.

· 30% or less is generally considered as an excellent ratio by the vast majority of loan officers
· 20% - 36% is a good ratio and will most likely not cause any problems with loan officers or have a negative impact on your FICO score
· 36% - 40% puts you on the edge of the limits of acceptability. Most lenders will ask for an explanation for why your debt to income ratio is so high. In addition, a debt to income ratio in this range begins to have a negative impact on your FICO score so lenders look to other strong numbers before making a decision to loan more money to you
· 40% or higher sends up red flags with lenders and your FICO score. Often, this high a ratio will be a deal killer with most lenders

By calculating your own debt to income ratio you begin to get a handle on your own financial situation. If the ratio is too high it tells you that you are too deep in debt and you must do something to reduce the debt.

Of course, if it is very low then you need do nothing. For most lenders and the impact of debt to income on your FICO score a positive reduction in the ratio is presumed to be a sign of a healthy financial condition and goes a long way in enhancing your credit history.

FICO & Debt to Income Ratio Info - To learn more about this author, visit Eric Pinola's Website.

Like this article? Share it with your friends
[Get Copyright Permissions] E-Mail | Print | More  


Related Articles Related Articles
FICO & Debt to Income Ratio Info
  In the United States, a credit score is a number based on a statistical analysis of a person's credit files that represents the creditworthiness of that person, which is the likelihood that the person will pay their...
How Does Debt Settlement Affect My Credit?
  Effects of a Debt Management Program on your credit score.
Business ratios
  Business ratios are tools that help you in evaluating the current performance of your business.
Types of Finance
  In essence there are three main sources of money to fund a business venture: * Equity (or capital). * Debt. * Grants.
Excellent Credit Score; yet not able to obtain new credit?
  Most of America is under the belief system that having a high credit score is the most important thing in the world. In reality a person’s credit worthiness is made up of a few different items. Sometimes it's better...

Related Forum Posts Related Forum Posts
What home loan rates are you getting? What home loan rates are you getting?
Re: What are your success criteria? Re: What are your success criteria?
What are your success criteria? What are your success criteria?
success of the day... success of the day...
Re: Are Economic Recessions Good for Franchising? Re: Are Economic Recessions Good for Franchising?
Re: Ideas For Business Re: Ideas For Business
How to valuate a business How to valuate a business
Internet Marketing Conference on SLife Internet Marketing Conference on SLife

Related Forum Posts Related Businesses - Evan Elite Authors

The Evan Elite Authors program is currently in beta phase. For details please contact us.


 
About the Author


Eric Pinola
(Visit Eric's Website)
Credit Alliance Group is a leading debt management company in Dallas, Texas that provides solutions to any unsecured debt challenges. As the director of enrollment I am encouraged to see how much we can help people each day. Our programs are built around the client’s budget; so that they can become debt free again without unnecessary stress. We offer a Basic, Pro, and Elite edition of our services. The road to becoming debt free can be long and hard so it is important to make the journey with a company that truly cares and has the experience to get the job done right the first time. Check out our website; or give us a quick call for a free no obligation enrollment package with your figures in it. 1-866-359-5677 www.creditalliancegroup.net or debt-credit-repair.com/index.html
Have A Suggestion?

View Author's Blog
Credit Alliance Group
Credit Alliance Group - Dedicated to helping people to become debt free.
Become An Author

View Author's Video
Become An Author

Free Downloads


Eric Pinola's

Complete
List Of
Sales
Articles

First Name
Last Name
Email
 
If you enjoyed this article, get Eric Pinola's Complete List of Sales Articles For FREE!

More Eric Pinola
Basic Interview Etiquette
The Bankruptcy Myth
Debt Consolidation vs Debt Management vs Debt Settlement
Banks and Collectors Have a New Twist on the Old Bait Switch Tactic
How Do I Know I Need Help With Debt
71000 Complaints to the FTC about Creditor Harassment Last Year up 500 from 2004
The Difference Between Secured Debt and Unsecured Debt
Is this the first real economic dip for Generation X
How To Save Money While In Debt
Excellent Credit Score yet not able to obtain new credit
Become An Author