Since debt-to-income ratio (dti) is an important factor in determining one's creditworthiness especially for mortgage rates, it is clear that one should keep the monthly recurring debt and credit card payments as low as possible.
My question is: Would spending one's cash instead of using credit cards impact this rate? Let me give an example.
Say my gross monthly salary is $5000. My rent is $1000, monthly auto loan payment is $100, and for simplicity, I have no other recurring payments. Say my other living expenses (groceries, entertainment, dining etc) add up to $2000 and I am definitely living below my means. The question is: What happens if:
a) I spend that $2000 with my credit cards and pay my cards in full vs
b) I spend that $2000 with my debit card/cash?
Does option a make my dti (1000+100+2000)/5000 = 62% and option b (1000+100)/5000 = 22%? Is it this simple? Even though the money going into and coming out of my bank account remains the same, can just the method of spending make such a huge difference?
