When the credit payment is not provided, what percentage of the credit balance is used to calculate DTI?

When the credit payment is not provided, what percentage of the credit balance is used to calculate DTI?

• A. 10%
• B. 5%
• C. 15%
• D. 20%

Answer: (B)

When calculating DTI, you include the monthly debt payments. If the monthly payment for a credit account isn’t provided, lenders estimate it using a set percentage of the outstanding balance. For credit cards, the standard estimate is 5% of the balance. This estimate serves as the monthly obligation to avoid underestimating the borrower's burden while keeping a consistent method. Therefore, 5% of the balance is used to calculate the DTI in the absence of a disclosed payment. Higher percentages would overstate the payment and skew the DTI more than necessary.

When calculating DTI, you include the monthly debt payments. If the monthly payment for a credit account isn’t provided, lenders estimate it using a set percentage of the outstanding balance. For credit cards, the standard estimate is 5% of the balance. This estimate serves as the monthly obligation to avoid underestimating the borrower's burden while keeping a consistent method. Therefore, 5% of the balance is used to calculate the DTI in the absence of a disclosed payment. Higher percentages would overstate the payment and skew the DTI more than necessary.