When can an item on a credit report be excluded from DTI?

When can an item on a credit report be excluded from DTI?

• A. An item with 10 payments or less (excluding leases)
• B. An item with 20 payments or less
• C. Only if it is current and not delinquent
• D. If it is less than 5 payments

Answer: (A)

In DTI calculations, lenders sometimes ignore short-term obligations that will be paid off soon, so they don’t distort the borrower’s long-term debt burden. The rule is that an item on a credit report can be excluded from DTI if there are ten payments or fewer remaining, and leases are excluded from this rule. The idea behind excluding these short-term obligations is that once the remaining payments are paid, that debt no longer affects the borrower’s ability to manage new, ongoing obligations. Leases are treated separately because they represent lease/rent arrangements rather than traditional installment debt with a fixed payoff. So, if you have an installment obligation with only ten payments left (excluding leases), it can be left out of DTI calculations.

In DTI calculations, lenders sometimes ignore short-term obligations that will be paid off soon, so they don’t distort the borrower’s long-term debt burden. The rule is that an item on a credit report can be excluded from DTI if there are ten payments or fewer remaining, and leases are excluded from this rule.

The idea behind excluding these short-term obligations is that once the remaining payments are paid, that debt no longer affects the borrower’s ability to manage new, ongoing obligations. Leases are treated separately because they represent lease/rent arrangements rather than traditional installment debt with a fixed payoff.

So, if you have an installment obligation with only ten payments left (excluding leases), it can be left out of DTI calculations.