@Elizabeth_FICO wrote:Hello everyone! If there's a new blog article that I think you guys might like I plan on posting it in the Forums.
This week's article is: Why Your Debt-to-Income Ratio Is So Important
Let me know what you think about the article.
"But your DTI is important because it helps creditors better understand your capacity to take on new debt and repay it as agreed."
I wish articles like this would address my situation, i.e., retired with a very small income, yet perfectly able to pay bills (thanks to money I socked away while working), and my DTI being totally irrelevant.
Generally speaking, I don't carry large balances on credit cards. When I do carry balances, they're at 0% interest. Right now I'm doing some major renovation stuff at my house, including completely redoing my bathroom, and buying a new refrigerator (delivered today, actually!), putting everything on CCs. If you look at my *current* DTI ratio, it sucks! Yet I have no stress whatsoever about being able to pay my bills--and neither should my creditors. I've PROVEN that I'm capable of paying very large debts (can you say 6-figure medical bills? I can!), regardless of what my DTI says.
I understand that DTI is just another piece of the credit-granting puzzle, and I get that it has its place, but it just annoys me that it's thought of in such black-and-white terms when circumstances vary so much from individual to individual.
/rant
@iced wrote:
@SoCalGardener wrote:
@Elizabeth_FICO wrote:Hello everyone! If there's a new blog article that I think you guys might like I plan on posting it in the Forums.
This week's article is: Why Your Debt-to-Income Ratio Is So Important
Let me know what you think about the article.
"But your DTI is important because it helps creditors better understand your capacity to take on new debt and repay it as agreed."
I wish articles like this would address my situation, i.e., retired with a very small income, yet perfectly able to pay bills (thanks to money I socked away while working), and my DTI being totally irrelevant.
Generally speaking, I don't carry large balances on credit cards. When I do carry balances, they're at 0% interest. Right now I'm doing some major renovation stuff at my house, including completely redoing my bathroom, and buying a new refrigerator (delivered today, actually!), putting everything on CCs. If you look at my *current* DTI ratio, it sucks! Yet I have no stress whatsoever about being able to pay my bills--and neither should my creditors. I've PROVEN that I'm capable of paying very large debts (can you say 6-figure medical bills? I can!), regardless of what my DTI says.
I understand that DTI is just another piece of the credit-granting puzzle, and I get that it has its place, but it just annoys me that it's thought of in such black-and-white terms when circumstances vary so much from individual to individual.
/rant
Even retirees/people living off invested assets still have a DTI, so it's not irrelevant. Your lower income is going to be offset by making a larger down payment, but at the end of a day a bank isn't going to loan based on potential income -- they want to see realized income.
My mortgage lender wasn't going to loan me money on the premise I make payments out of investment drawdown. I could report regular dividends as income, but if I wanted the leverage the rest in my home purchase, it would be as a down payment.
A larger down payment? On what? I haven't bought anything, nor do I intend to, that would require a down payment. So that's not an issue.
Also, some of my creditors asked for [optionally], and I provided, my assets. So they have that on file and can use it to make decisions. Even with my low income, I've never had an issue getting higher CLs or new credit; I've noted before when people see "income too low" (or similar) as a denial reason, that I haven't seen that. I don't know if these are all related somehow!
@iced wrote:
@SoCalGardener wrote:A larger down payment? On what? I haven't bought anything, nor do I intend to, that would require a down payment. So that's not an issue.
Also, some of my creditors asked for [optionally], and I provided, my assets. So they have that on file and can use it to make decisions. Even with my low income, I've never had an issue getting higher CLs or new credit; I've noted before when people see "income too low" (or similar) as a denial reason, that I haven't seen that. I don't know if these are all related somehow!
If the point you're making is that you are able to afford anything you need because of accumulated investments, then DTI (and many other things, including your credit scores really) are going to be largely meaningless because you don't utilize any of those services. As long as you have a decent score and some form of regular income, it's sufficient. It doesn't matter what your DTI is in this case because your D is 0, which is why your situation isn't usually discussed.
If you're just talking credit cards, then DTI isn't that important for most people. Some creditors ask about the amount for your monthly housing payment, but that's only part of DTI and I've yet to have a credit card application ask me for anything beyond general income and that monthly housing cost. They don't ask for assets like a mortgage lender does. Most don't even ask for proof of income unless some red flag triggers in their system. If they do, it's because they can't make a risk determination, but generally don't have to.
But there are times when my DTI ratio is high--like right now! I've spent a ton of money (all on credit cards) redoing my bathroom and buying a new refrigerator. If everything gets reported as they stand now, my DTI will suck big time! My utilization, both on a per-card and overall basis, will still be low (thanks to high CLs and no previous balances), but my DTI will be high.
I get it, that it's all academic in my case, since I'm not seeking or planning to seek any credit, big or small. Just saying that the general practice of using DTI as an indicator of being unable to pay bills doesn't *always* make sense.
