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Note: This example is only an illustration of the type of information provided when a TransUnion credit product is purchased. The information in the example is fictitious and does not reflect your personal situation. You must purchase a TransUnion credit product to obtain credit information that pertains to your personal situation.
Debt Analysis Example
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Income used to pay your debt |
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Income used for other purposes |
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Monthly income: |
$2,500 |
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Monthly payments: |
$259 |
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Debt Analysis compares the difference between the monthly income you entered and the monthly amount you spend to maintain your debt (as listed in your credit profile or reported by you). This is called a debt to income ratio. Lower debt to income ratios are better because lenders view borrowers with low debt to income ratios as having a better capacity to repay their debts.
You are currently using 10% of your monthly income to repay debt. The amount of debt that you carry is considered very low when comparing it to your income. Lenders typically view debt to income ratios less than 20% as Very Good.
A low debt to income ratio along with a good credit standing, which is determined by timely repayment of debt, are both considered very favourable by lenders. Most often, a low debt ratio along with a good credit standing will entitle you to receive the best interest rates and in some cases provide less collateral.
Having a low debt ratio is an indication that you have the ability to handle more debt, if needed. This may be an ideal time to consider making major purchases such as a new home, car, or to make those investments or home improvements you have been considering.
It is important to keep in mind that individual or household capacity for debt can vary significantly. Your lifestyle or stage in life can dramatically influence your ability to carry debt. Based on your current debt ratio, you are probably able to save part of your income each month. If your discretionary spending makes it difficult for you to save each month, you might consider reducing your discretionary spending in order to increase your monthly savings. This may make it easier to repay any additional debt if needed.
Remember that your debt to income ratio is not the only criteria used by lenders to evaluate your creditworthiness. Additional factors include your credit score, and in some instances, any collateral you have to offer to reduce the lender’s risk in case of default. These and other personal factors are evaluated according to each lender’s policies and preferences.
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