Advertiser Disclosure

How Do Credit Utilization Ratio and Debt-to-Income Ratio Affect My Credit Score?

Credit utilization ratio, not debt-to-income ratio, affects your credit score. Both are important to lenders when you apply for credit.
Sept. 28, 2018
Credit Score, Personal Finance
Credit Utilization Ratio vs. Debt-to-Income Ratio: What's the Difference?
NerdWallet adheres to strict standards of editorial integrity to help you make decisions with confidence. Some of the products we feature are from partners. Here’s how we make money.
We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Here’s how we make money.

Credit utilization ratio and debt-to-income ratio can both have an effect on whether you get approved for a loan or credit card. But only credit utilization affects your credit score.

Your credit utilization ratio (sometimes called debt-to-credit ratio) is a measure of how much credit you’re using compared with how much you have available. For example, let’s say that you have a $10,000 credit limit on your card and your current balance is $4,000. That makes your credit utilization ratio 40%.

Know where your credit stands

Get your credit score, weekly. We'll help you monitor your credit and track your progress.

Your debt-to-income ratio (abbreviated DTI) is a calculation of how much of your monthly income is devoted to debt payments and certain other financial obligations. Lenders want to know you have the ability to pay back a loan.

Payments that should be factored into your DTI include:

  • Monthly rent or mortgage payments (including taxes and insurance).
  • Minimum monthly credit card payments.
  • Monthly auto and student loan payments.
  • Monthly child support or alimony payments.
  • Monthly payments on any other type of loan.

Once you’ve added up all these obligations, divide the total by your monthly gross (pre-tax) income to arrive at your DTI. For example, if your debts add up to $2,000 and your monthly income is $4,000, your debt-to-income ratio is 50%.

How credit utilization affects your credit

A whopping 30% percent of your FICO score, the scoring model used in most lending decisions, is determined by your credit utilization ratio.

VantageScore, FICO’s competitor, doesn’t give percentages, but calls credit utilization “highly influential.”

In general, it’s best to keep your credit utilization ratio below 30% on any single credit card and across all them together — and lower is better for your score. (Read our tips to lower your credit utilization.)

It’s important to note that your credit utilization ratio is influenced almost entirely by your revolving credit card debt. The amount of credit you’re using on other types of loans makes very little difference.

Why debt-to-income ratio matters

Although your debt-to-income ratio isn’t used to calculate your credit score, you should still pay close attention to it. DTI is a big factor lenders use to decide whether to lend to you because it indicates how able you are to take on an additional financial obligation.

Banks and other types of lenders set their own DTI standards, so an acceptable DTI with one lender might be considered too high with another.