Before any financial institution lends money or extends credit, it will want to make sure that you’re financially capable of paying back what you borrow (plus interest). One way to determine whether you have the financial footing to handle a new loan or credit limit is to compare the money you earn to your monthly financial obligations.
This comparison of monthly income versus debt is known as your debt-to-income ratio, or DTI for short.
Put another way, your DTI ratio is the percentage of your income (gross, monthly) that you’re using to cover your monthly debt payments. It’s a measurement of your borrowing capacity. A lower DTI ratio is better, in terms of the lender’s risk, since you have more money available to repay the money you borrow.