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When you’re trying to improve your credit score, reach savings goals, or clear debts, you’ll come across lots of new words, terms and phrases. The jargon used to describe financial terminology can be daunting, but Loqbox is here to talk your language.

Let’s take a look at what debt to income ratio (DTI) means, and how that affects your credit scores.

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Borrowing responsibly is about knowing how much debt you can afford. So maybe you’re wondering “how do I calculate my debt to income ratio?”. Your DTI compares your total debt to your gross monthly income, and helps lenders determine how well you might manage credit repayments . Understanding your DTI can help you take steps to reduce debt and improve your credit scores.

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Your credit scores are numerical values which help to summarise how lenders view your credit reports when you apply for products like mortgages, loans and credit cards. Your credit report impacts whether lenders decide to give you money and at what interest rates, so having good credit scores could save you thousands in the long run.

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Your credit scores are calculated by the top three credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion. Each agency calculates their version of your score differently.

If you don’t know what your three credit scores are you can check them for free without hurting them using these recommended services and then use the table below to work out the bracket:

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ClearScore (uses Equifax data)*

Credit Club (uses Experian data)

Intuit Credit Karma (uses TransUnion data)

*For transparency, if you sign up for ClearScore using this link, they give us a little commission.

It’s perfectly normal to see some minor variation in your score brackets, but if you check all three and one of your scores is ‘Poor’ but the other two are ‘Excellent’, then something might be up. In which case, investigate your reports to look for errors or check for fraudulent activity that may be happening under your name.

Debt to income ratio calculator

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If you’re wondering how to calculate your debt to income, it’s easy! Just add up all of your monthly debt payments (including credit card bills, student loans, car loans, and mortgage payments) and divide the total by your gross monthly income (before taxes and deductions). 

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For example, if you have a total of £1,000 in monthly debt payments and make £3,000 each month, your DTI is 33% (£1,000 ÷ £3,000 = 0.33 or 33%).

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A high DTI can negatively impact your credit score, as lenders see it as an indicator that you might struggle to pay back debts. Most lenders prefer to see a DTI of 39% or less, but some may have their own specific requirements.

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If your DTI ratio is too high, there are several steps you can take to reduce it. First, consider paying off high-interest debts or consolidating multiple debts into one lower-interest loan. You can also explore ways of increasing your income or reducing your expenses to improve your debt-to-income ratio.

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What’s a good debt ratio?

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A good debt to income ratio varies depending on the individual lender's guidelines and also the type of loan you’re applying for. But there are some general rules of thumb that you might find handy.

• As mentioned, a DTI ratio of 39% or less is generally considered favourable 
• Anything between 40-49% is considered to be a moderately risky DTI ratio 
• 50% or higher could result in your credit application being denied

What’s an acceptable debt to income ratio?

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‘Acceptable’ is a relative term. An acceptable DTI for your own unique circumstance, may look very different to someone else’s. So try to stay clear from drawing direct comparisons.

That being said though, there is an average debt to income ratio that can give you an idea of how you compare to the rest of the nation.

According to UK Parliament research, the average debt to income ratio for UK households (Quarter 3 2022) was 133.8%. This includes all types of debt, such as mortgages, car loans, and credit card debt. We also see the average debt to income ratio increase with age, as retirement can dramatically reduce income while debts remain.

What’s my loan to income ratio?

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Your loan to income ratio is also an important factor that lenders use to determine how much money they can offer you, and at what interest rate. This ratio measures the amount of money you can borrow compared to your income. Generally, lenders prefer a lower loan-to-income ratio as it shows that you have a better ability to repay loans.

How does my debt to income ratio affect my credit score?

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Ultimately, managing your DTI is an important part of improving your credit scores and securing better financial opportunities. By taking control of your debt and working towards a healthier ratio, you can build a brighter financial future for yourself and your family.

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Building credit takes patience but you’re in great hands with Loqbox. For the quickest route to a better score, get your Loqbox membership started for just £2.50 a week and activate Loqbox Grow, Loqbox Save and Loqbox Rent. Our members have seen increases of up to 300 points in the first three months when combining all of our products.

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Improvements to your credit score are not guaranteed.