DTI and CC- two completely opposite questions!

[spedteacher1]

I have been working diligently on my credit over the last year and I have seen a change in my DTI.  I am now at 28%. However, I have no idea what a good DTI should be...we are looking to refinance in about 2 months.  I just want my mortgage score to move up a bit.  What should I be working towards with my DTI?

Also, I have balanced almost all my cards to zero. I am trying to get to AZEO- I have a long way to go, but I have come a long way!  I do not want any of my zero cards closed becuase I don't want to lose the uti points.  How often do you use the cards to make sure they stay open?

Thanks!

[ccquest]

For DTI I don't think there's a universal number, but I've seen a lot of the references seem to be around the 40% mark inclusive of the mortgage payment. The lower you are there, the better. That would include: mortgage, student loans, personal loans, auto loans, credit card payments, wage garnishments, and any other mandatory payments on your credit report.

To keep the cards alive, make sure to use them at least every 6-12 months. I keep a track of mine on a 90 day schedule personally.

[Anonymous]

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@spedteacher1 wrote:

I have been working diligently on my credit over the last year and I have seen a change in my DTI.  I am now at 28%. However, I have no idea what a good DTI should be...we are looking to refinance in about 2 months.  I just want my mortgage score to move up a bit.  What should I be working towards with my DTI?

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While you didn't directly suggest it, just know that DTI is not a Fico scoring factor and that improving your DTI will not in and of itself raise a Fico score.  Indirectly it can, as lowering revolving debt can lower DTI while raising Fico scores but they don't always have to go hand in hand.  For example, someone could have 2 loans with (say) $400/mo payments... one that's brand new and one that's just about paid off.  Paying off the one would lower DTI since there would not be one less $400/mo payment, but it wouldn't improve Fico scores and in fact could even lower Fico scores a bit since installment loan utilization would increase.

The best things you can do for your mortgage scores would be to zero out as many revolving accounts as possible (less accounts with balances) while just paying down revolving utilization in general across known threshold points.

[spedteacher1]

@Anonymous Thanks!  Yes, I guess I know that DTI  doesn't change my fico but I was just wondering if 28% is still considered too high.  Thanks!

[Anonymous]

I would think in most cases it wouldn't be.  You'd have to speak to your specific lender though, as they can all have slightly different takes on it.

[Life_take2]

@spedteacher1  , Short answer, I think you should be in good shape at 28% if income is stable and verifiable.

Slightly longer answer:

In general, conventional guidelines look for a backend DTI Ratio of 36% of stable income.(Backend ratios are inclusive of all CBR reported payments and PITI on the proposed mortgage). Having said that, there are a few points to consider, IF any of the following apply to your situation:

• Cash-out refi's may have additional DTI requirements 
• Non-owner occupied properties are stricter on DTI req.
• High Loan-to-value transactions (Lending above 80-90% of  property's value, for example) 
• These are generalizations for conforming lending and your CU or Bank may have different guidelines depending on whether or not they plan on servicing or selling your loan. 

In any case, you should be in good shape at a sub 30% DTI.  Congrats on the progress you have made thus far.  Hope this helps set your mind at ease a little.

[RobertEG]

Debt to income is a term that will apply in mortgage underwriting, providing a view of total debt, including any not currrently showing in your credit report, to total income, also not shown in your credit report.

I would simply suggest that, when considering credit scoring, you use the term percent utilization rather than debt to income.

That will then avoid confusion when considering what to do to improve scoring.

The most significant is then the % util of revolving credit, and then to a much smaller degree your current util of installment loan credit, expressed as the % of current balance to the initial loan amount.

[spedteacher1]

@RobertEG Thanks.  I have been working on my uti% for almost a year.  I was at about 80% and now I am at 63%- but that does include my HELOC.  My cc uti is 41%.  Still high, but I am trying!

[spedteacher1]

@Life_take2 Thanks!  I do think our jobs are stable (fingers crossed!!)- although anything is possible in this economy.  

Our house is worth about $500k, and our current mortgage is $200k, we are hoping to refi for an additional $120k.  We should be good, not above the 80%.  It is all so nerve wracking- once I learned all about credit scores and all of "this" it was almost like knowing too much, I have become obsessed!  I never realized how clueless I was. 

[Dcyphrz]

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"I never realized how clueless I was."

If I had a nickel for every time I've said that...

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