Wednesday, 4 Jun 2008
Consumer Reports published an article on the eight benchmarks of borrowing. I must say that I don’t agree with all of their benchmarks. For example, they state that non-mortgage debt (i.e. auto loans, credit cards, etc.) shouldn’t be more than 20% of your gross income. If a person has a gross income of $45K (close to the US median), that’s $750/mo. That’s definitely a bit bunch and an indicator that you’re probably living above your means.
The article also lists 28% for mortgage payments (PITI) which I feel is reasonable. However if you’re spending 20% on non-mortgage debt, 28% on your mortgage, 25% on income tax, you can see where this is headed. Not much left to pay other bills or save.
Last but not least, they give a benchmark of 650-700 for your FICO. I consider 650 average at best. 700 is a much better bar to set. Once you reach that level, you’ll be able to obtain the best rates for loans and credit cards (though I hope you won’t carry a balance).
How do you compare to Consumer Reports’ benchmarks?