Google Rescinds Offers to Thousands of Contract Workers

The company made the cost-cutting move as it navigates a slump in advertising created by the pandemic.

Google is adding perks for full-time employees while pulling job offers to thousands of contractors.
Google is adding perks for full-time employees while pulling job offers to thousands of contractors.Credit…Jason Henry for The New York Times
Daisuke Wakabayashi

By Daisuke Wakabayashi

  • May 29, 2020Updated 2:30 p.m. ET

OAKLAND, Calif. — Google, facing an advertising slump caused by the pandemic, has rescinded offers to several thousand people who had agreed to work at the company as temporary and contract workers.

“We’re slowing our pace of hiring and investment, and are not bringing on as many new starters as we had planned at the beginning of the year,” Google said in an email to contracting agencies last week that was seen by The New York Times. The company told the firms that it “will not be moving forward to onboard” the people that the agencies had recruited to work at Google.

The move affected more than 2,000 people globally who had signed offers with the agencies to be a contract or temp worker, according to three people familiar with the decision, who spoke on the condition of anonymity because they were not allowed to speak publicly on the matter.

Google employs more than 130,000 contractors and temp workers, a shadow work force that outnumbers its 123,000 full-time employees. Google’s full-time staff are rewarded with high salaries and generous perks, but temps and contractors often receive less pay, fewer benefits and do not have the same protections, even though they work alongside full timers.

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The coronavirus crisis has underscored that disparity. Google announced in April that it was extending its employee paid leave policy to 14 weeks from eight weeks for caretakers, including parents looking after children whose schools are closed. For employees working from home, Sundar Pichai, chief executive of Google’s parent company Alphabet, said on Tuesday that they could spend $1,000 for equipment and furniture like standing desks and ergonomic chairs.

Many of the contract and temp candidates who had agreed to work at Google before the pandemic took hold in the United States were let go without any severance or financial compensation. This came after weeks of uncertainty as Google repeatedly postponed their start dates during which time they were not paid by Google or the staffing agencies.

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Some of the would-be contractors left stable, full-time jobs once they received an employment offer at Google and are now searching for work in a difficult labor market. Some, who are Americans, said the rescinded offers have complicated and, in some cases, delayed their ability to receive unemployment benefits because they left their last jobs voluntarily, according to several of the workers facing this quandary.

In mid-April, Mr. Pichai told employees in a memo that the company planned to “significantly” slow the pace of hiring this year, with the exception of several strategic areas. A company spokeswoman said at the time that Google intended to bring on the people who it had already hired but who had not started.

But this did not seem to apply to contractors or temp workers for Google and Alphabet, which has a market capitalization of near $1 trillion dollars. It made $6.8 billion in profit in the first three months of 2020, despite what it called “a significant and sudden slowdown” in advertising.

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“If these people were promised jobs at Alphabet, which is worth a trillion dollars, it seems like the company has a responsibility to take them on,” said Ben Gwin, who works as a data analyst in a Google office for HCL America, a contracting agency. “It’s not like Google can’t afford it.”

Mr. Gwin led a unionization effort for contract technical workers at Google’s offices in Pittsburgh last year.

“As we’ve publicly indicated, we’re slowing our pace of hiring and investment, and as a result are not bringing on as many new people — full time and temporary — as we’d planned at the beginning of the year,” said Alex Krasov, a Google spokeswoman.

Ruth Porat, chief financial officer for Alphabet, told analysts last month that the company was cutting expenses by not hiring as many new employees as initially projected. She did not address contract or temp workers.

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Google has taken some steps to help its temp and contract workers. In March, the company said it would extend the assignments of temp workers whose jobs were scheduled to end from March 20 to May 15 by 60 days.

The company also said it would continue to pay contract workers affected by office closures such as people who serve food in the company’s cafeterias. And it established a fund to allow contingent workers to take paid sick leave if they exhibit coronavirus symptoms or can’t come to work because they’re quarantined.

Like many technology companies, Google depends on a large number of temps, vendors and contractors to perform a wide variety of jobs, including cafeteria workers, maintenance workers, recruiters, content moderators and software testers. For the company, these workers cost less than full-time employees, and Google has no long-term obligation to them, making it easy to hire them or eliminate their positions.

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Last year, 10 Democratic senators called on Google to convert its temporary and contract workers to full-time employees, saying the company should stop its “anti-worker practices” and treat all of its workers equally.

Google pays staffing companies to find the workers and provide them with salaries and benefits as their employer. But Google interviews prospective candidates and signs off on hiring, deciding where they work, what they do and when to fire them.

When Google pulled the offers to prospective workers, the company told the staffing companies, which included firms like Accenture, Cognizant and Adecco, that “we’ll look to you to have the conversations with the individuals who won’t be onboarded.” Google said it was “hopeful” that the “agencies will be able to find other assignments” for the candidates.The Coronavirus Outbreak

Today’s Question: My state is reopening. Is it safe to go out?

States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.

It was not immediately clear which countries were most affected in the decision, but some of the workers are in the United States, India and the Philippines. This was the second wave of rescinded job offers for temps and contract workers. Google had pulled offers for several dozen temp workers in April.

Joli Holland was one of the candidates whose job offers was rescinded in mid-April. She was working as a lead teller at Wells Fargo when Adecco contacted her about a recruiter position working at Google in Mountain View, Calif. After a few rounds of interviews, she was offered the position with a start date of March 23.

She was hopeful that she would get her foot in the door with a temporary job and land a full-time position at Google. Before she gave her two-week notice to Wells Fargo, she checked with Adecco about whether the job at Google was safe given the growing concerns about the coronavirus. Ms. Holland said she was assured that everything “should be fine.”

Another candidate whose offer was rescinded expressed similar concerns to another recruiter at Adecco. This person, who asked not to be identified because they still wanted to work at Google and were worried about being blacklisted for speaking out, said the recruiter said “Google always does the right thing, so I wouldn’t worry about it.”

Mary Beth Waddill, a spokeswoman for Adecco, said the company did not intend to mislead anyone about their career prospects, “especially given the uncertainty of the Covid-19 pandemic. Our standard practice is to advise in writing that placement on assignment is not guaranteed.”

A few days before Ms. Holland was set to start, she was told that her start date at Google would be pushed back to April 6. Then it was postponed to April 13 and again to April 20, a Monday. On the Friday before she was set to begin her job, Ms. Holland said she was told that the company was rescinding all temp worker offers. She didn’t receive any money while she waited to start at Google, nor did she get any severance.

“I’m disappointed, because not a lot of people are hiring right now,” she said. She hadn’t filed for unemployment because she left her last job voluntarily. Still, Ms. Holland said she still hoped to work for Google because it would still be a great opportunity.

“I am disappointed, but it hasn’t completely soured me on the company,” she said. “I’d still like to work there.”Google’s Shadow Work ForceGoogle’s Shadow Work Force: Temps Who Outnumber Full-Time Employees

Most who got COVID-19 mortgage relief feel guilty about it now

Doug WhitemanMoneyWiseMay 23, 2020

Most Americans who’ve been given a break from mortgage payments for the coronavirus crisis didn’t really need to do that and don’t feel good about it, a new survey finds.

The Cares Act — the same law that gave us those $1,200 stimulus checks and the supersized unemployment benefits providing an extra $600 per week — also allows homeowners to claim financial hardship and put their mortgages on hold for up to a year.

It’s called mortgage forbearance, and the data firm Black Knight says 4.75 million U.S. homeowners, holding 9% of all mortgages, have taken advantage of the program.

Initially, forbearance under the Cares Act came with some stigma: Borrowers who put their payments aside learned they were ineligible to refinance their loans at today’s incredibly low mortgage rates. They would have had to wait a year after getting caught up. But that rule has been eased.

Even so, the overwhelming majority of Americans who were approved for the loan relief indicate they would have been just fine without it, according to the LendingTree survey.

Just 5% couldn’t have paid their mortgages otherwise

A quarter of U.S. homeowners requested forbearance, and 80% of those applicants were approved, LendingTree says its survey found.

But only 5% who got the time-out on their mortgages say they wouldn’t have been able to make their payments without the relief. Another 26.2% say they could have stayed current on their home loans but would have had to put off paying other important bills.

The forbearance offer is open to the 70% of U.S. mortgage holders who have government-backed loans, including FHA and VA home loans, and loans owned by the government sponsored mortgage companies Freddie Mac and Fannie Mae.

The Cares Act allows borrowers to ask for an initial hold on their mortgage payments for up to 180 days. After that, you can seek another 180-day break. The lender isn’t allowed to add fees or extra interest, and forbearance doesn’t hurt your credit score.

People sometimes confuse forbearance with forgiveness. But forbearance doesn’t wipe out any mortgage payments; it merely postpones them.

Once the forbearance period ends, your options for making good on your delayed payments include:

  • A one-time lump-sum or “balloon” payment. This option is not recommended because of the obvious challenge it poses for homeowners going through financial difficulty. But there have been reports of lenders trying to steer borrowers in the balloon direction.
  • An extension added to the end of your loan, amounting to the payments and interest you missed.
  • A plan that increases your monthly payment to pay off what you owe.

Forbearance can be ‘a good strategy’

man in medical mask in the yard,man standing in his yard in summer wearing a protective mask and goggles
volodimir bazyuk / Shutterstock
Forbearance can provide financial relief during the pandemic.

Even if you don’t really need it, obtaining a forbearance can be a good strategy that provides more wiggle room when you’re going through a rough financial patch, says Tendayi Kapfidze, chief economist at LendingTree.

“With uncertainty around how long the COVID-19 crisis will last and how deep its economic impact will be, preserving cash is a priority for many Americans. A mortgage forbearance temporarily removes mortgage payments from the equation,” Kapfidze writes.

Even so, 71.5% of those who were given forbearance now feel “a lot” or “a little” guilty, the LendingTree survey found.

“Asking for help isn’t easy when you fall on hard times, and some homeowners may even feel embarrassed or guilty about it,” says Kapfidze.

The Federal Housing Finance Agency has eliminated one potential source of shame for borrowers who put their mortgages on ice: They’re no longer penalized if they want to refinance. If they’re granted forbearance but continue to make their payments, they now have the ability to refinance their loans with no waiting.

“Today’s action allows homeowners to access record-low mortgage rates and keeps the mortgage market functioning as efficiently as possible,” said FHFA Mark Calabria in a statement making the announcement on Tuesday.

Or, there’s just a three-month wait to refinance or buy a new home after forbearance if you had skipped paying on your mortgage but then make three consecutive payments.

4 tips to boost your credit score fast

When you have a good credit score, you can get better terms and lower interest rates on loan products and credit cards. But it’s not always easy to just raise your credit score overnight. First, you need to consider why your score is low.

“Understanding the specific circumstances as to what is impacting your score is your first step in understanding how to quickly increase your credit score,” Jim Triggs, president and CEO of nonprofit credit counseling agency Money Management International, Inc (MMI), tells CNBC Select.

Below, we get advice from Triggs and a couple other experts on how quickly your credit score can increase and tips for making it happen.

1. Pay down your revolving credit balances

If you have the funds to pay more than your minimum payment each month, you should do so. Chipping away at your revolving debt can have a major impact on your credit score because it helps to keep your credit utilization rate low. 

“How quickly [your score can go up] depends on how quickly the individual creditors report the paid balance on the consumer’s credit report.” Triggs says. “Some creditors report within days of the payment, some report at a specific time each month.” Credit card companies typically report your statement balance to the credit bureaus monthly, but this could vary depending on your issuer. You can call or chat online with your card issuer to find out when they report balances to the bureaus.

The sooner you can pay off your balance each month the better. You can also make multiple payments toward your balance throughout the month so it is easier to track your spending, and it keeps your balance low. And although it helps to even pay off a portion of your debt, paying off the entire balance will have the biggest and fastest impact on your credit score.

2. Increase your credit limit

You can increase your credit limit one of two ways: Either ask for an increase on your current credit card or open a new card. The higher your overall available credit limit, the lower your credit utilization rate (as long as you’re not maxing out your card each month). Before asking for a credit limit increase, make sure you won’t be tempted to spend more than you can afford to pay off.

If you are considering opening a new credit card, do your research beforehand. How often you apply for and open new accounts gets factored into your credit score. Each application requires the card issuer or lender to pull your credit report, which results in a hard inquiry on your report and dings your credit score a few points.

“Usually the negative impact of those factors is much less than the benefit to your score of reducing your credit utilization ratio,” Triggs says. Just make sure you don’t apply to too many credit cards over a short amount of time and send a red flag to issuers.

It’s more important now than ever to do your research before applying for new credit because issuers may have stricter terms and requirements in wake of the economic fallout from coronavirus. Check to see what your credit score is beforehand.

Most of the best rewards credit cards require good or excellent credit to qualify, but there are some cards catered to those with less than stellar credit. The Petal® Visa® Credit Card has no fees whatsoever and allows applicants with no credit history to apply and the Capital One® QuicksilverOne® Cash Rewards Credit Card accepts fair or average credit and offers 1.5% cash back on all purchases.

3. Check your credit report for errors

One way to quickly increase your credit score is to review your credit report for any errors that could be negatively impacting you. Your score may increase if you are able to dispute them and have them removed. 

About 25% of Americans have an error on their credit reports, so it’s important to take the time to review. Some common errors to look out for include fraudulent or duplicated accounts, as well as misreported payments.

“Most of the clients we meet with have not reviewed their report within the past year, and are often surprised by what we find to discuss with them,” says Thomas Nitzsche, a financial educator at MMI. 

You can get a free credit report from the three major credit bureaus (Experian, Equifax and TransUnion) on a weekly basis by going to now through April 2021.

4. Ask to have negative entries that are paid off removed from your credit report

You may have a series of late payments on your credit report, or perhaps an old collection account that’s since been paid off still shows up. If this is the case, ask to have them removed. (And if you do have a collection account that’s unpaid, make this a priority. Unpaid collection accounts can negatively impact your score.)

This step may take more time and effort on your end, but it could be worth it. Triggs suggests speaking to the collections agency, debt buyer or original creditor (depending on who now services your account) to remove a paid-off account from your credit report. 

“You’d most likely have better results using this method with collection agencies or debt buyers versus the original creditor,” he says. 

Try to convince them to not only show the account as paid, but to remove the account altogether, which could have a much bigger impact on your credit score. “Having even a paid collection account or paid charge-off on your credit report could deter creditors in issuing you future credit at all,” Triggs says.

Bottom line

When it comes to improving your credit score, no there’s no one solution that fits all.

“It’s important to remember that every person’s credit journey is unique,” Beverly Anderson, president of global consumer solutions for Equifax. “So while there are many factors that apply to most consumers, they won’t always impact everyone’s credit scores in the same manner.”

Information about the Petal® Visa® Credit Card and Capital One® QuicksilverOne® Cash Rewards Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

Published Sat, May 23 2020 Elizabeth Gravier

Apple, Google release technology for pandemic apps

Updated: May 20, 2020 06:44 PM

Apple and Google on Wednesday released long-awaited smartphone technology to automatically notify people if they might have been exposed to the coronavirus.

The companies said 22 countries and several U.S. states are already planning to build voluntary phone apps using their software. It relies on Bluetooth wireless technology to detect when someone who downloaded the app has spent time near another app user who later tests positive for the virus.

Many governments have already tried, mostly unsuccessfully, to roll out their own phone apps to fight the spread of the COVID-19 pandemic. Many of those apps have encountered technical problems on Apple and Android phones and haven’t been widely adopted. They often use GPS to track people’s location, which Apple and Google are banning from their new tool because of privacy and accuracy concerns.

Public health agencies from Germany to the states of Alabama and South Carolina have been waiting to use the Apple-Google model, while other governments have said the tech giants’ privacy restrictions will be a hindrance because public health workers will have no access to the data.

The companies said they’re not trying to replace contact tracing, a pillar of infection control that involves trained public health workers reaching out to people who may have been exposed to an infected person. But they said their automatic “exposure notification” system can augment that process and slow the spread of COVID-19 by virus carriers who are interacting with strangers and aren’t yet showing symptoms.

The identity of app users will be protected by encryption and anonymous identifier beacons that change frequently.

“User adoption is key to success and we believe that these strong privacy protections are also the best way to encourage use of these apps,” the companies said in a joint statement Wednesday.

The companies said the new technology – the product of a rare partnership between the rival tech giants – solves some of the main technical challenges that governments have had in building Bluetooth-based apps. It will make it easier for iPhones and Android phones to detect each other, work across national and regional borders and fix some of the problems that led previous apps to quickly drain a phone’s battery.

The statement Wednesday also included remarks from state officials in North Dakota, Alabama and South Carolina signaling that they plan to use it.

“We invite other states to join us in leveraging smartphone technologies to strengthen existing contact tracing efforts, which are critical to getting communities and economies back up and running,” said North Dakota Gov. Doug Burgum, a Republican.

North Dakota had already launched a location-tracking app that about 4% of state residents are using, higher than other U.S. states with similar apps but falling far short of the participation rate that experts say is needed to make such technology useful.

Tim Brookins, the CEO of ProudCrowd, a startup that developed North Dakota’s app, said Wednesday that North Dakotans will now be asked to download two complementary apps – his model, to help public health workers track where COVID-19 patients have been, and the Apple-Google model, to privately notify people who might have been exposed to the virus.

Some privacy advocates have favored the Google-Apple approach because it offers more privacy and security. But others, including Ryan Calo, a law professor who co-directs the University of Washington’s Tech Policy Lab, said he is concerned about its effectiveness if people get too many false alerts asking them to quarantine themselves. He said public health agencies would be better off being able to track location with careful safeguards.

Calo said Google and Apple have been more upfront about the limitations of their model, but he said he’s still worried some governments will treat it as a substitute for crucial investments in free, widespread testing and hiring an army of human contact tracers.

“We’re just not going to get out of this global pandemic with a clever app,” he said.

Homeowners Insurance, Are You Covered?

A Popular trend these days when it comes to roof insurance is for insurance companies to offer actual cash value coverage for homeowners in lieu of the more traditional full replacement coverage that was popular in the past. This is for a variety of reasons, one of which is that there has been a string of natural disasters in recent years that have severely lessened insurance companies’ profitability.

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Texas, Kansas, Nebraska, South Dakota and Colorado were pummeled by hail in 2019, according to the Insurance Information Institute. In 2017, Texas alone had over 1,349,374 properties damaged by hail, and in 2018, both hail and wind accounted for over $810 million in property damage across the nation.

Obviously, roof coverage is important no matter what state you live in, but if you live in one of the states listed above, you definitely need to understand your policy.

Actual cash value vs. Replacement cost roof

ACV vs. RCV Which one is better? The answer to that question revolves around roof insurance claim depreciation.

Actual cash value (ACV) is when your insurance company only pays for what your roof was worth at the time you filed your claim. This means ACV roof insurance will consider your roof’s age and condition before determining how much it will reimburse you for any damage. In other words, it will determine how much your roof has depreciated since it was installed. If you have an older roof, and your policy is an actual cash value policy, you will most likely not receive enough to replace your roof.

Replacement cost coverage (RCV) is the opposite of actual cash value. RCV roofing insurance doesn’t take into account depreciation and instead pays the entire cost for the replacement of your roof after a covered event. This type of coverage costs more than actual cash value, but it means you won’t have to pay any more than your deductible if something were to happen.

Which one you choose should depend both on your budget and your roof. If you can afford it, and your roof is advancing in years, RCV might be best for you. If you have a new roof, on the other hand, it might make sense to only do ACV since the value of your roof is still high.

Winds of change

Allstate led the trend a few years ago to switch from replacement cost coverage to actual cash value. However, the company prefers to say that its House & Home policy offers a “scheduled roof depreciation option” for wind and hail damage on older roofs and is not the same as actual cash value coverage.

Other insurers in hard-hit states, including Farm Bureau Insurance of Tennessee and American Family Insurance, have also moved away from traditional replacement cost value roof coverage.

Michael Barry, spokesman for the Insurance Information Institute, an industry trade group, calls it a logical response, from the insurer’s perspective.

“If you look at a company like Allstate, they have all these homeowners who have gotten three $20,000 roof replacements in three years. That’s not a sustainable business model when they’re charging you $1,100 a year for home insurance,” he says.

Unfortunately, the trend leaves homeowners who have never heard of ACV or RCV at a loss as to which coverage to choose (if given the choice) — and could stick some who failed to spot a change on their policy renewal notice with a steep roof repair bill down the road.

A potentially big out-of-pocket hit

For example, say your $20,000 roof is 10 years old and your home insurance policy has a $1,000 deductible. If a storm destroys it and you have actual cash value roof coverage that depreciates the roof’s value by $1,000 per year, your out-of-pocket share of the cost for a new roof would be $11,000 (comprising the $1,000 deductible plus $10,000 for the depreciation). With replacement cost coverage, you’d be out only the $1,000 deductible.

“The dollar difference between replacement cost value and actual cash value is huge,” Barry admits.

To avoid such surprises, Allstate gives House & Home policyholders a “roof payment schedule” upfront that states exactly what their roof will be worth based on age and roof type.

“It’s really a loss settlement schedule,” says Allstate Vice President Laurie Pellouchoud. “It is only applied in the event of a wind and hail loss, so for other types of losses such as fire, your roof would be covered for full replacement cost.”

Pellouchoud declined to estimate what policyholders might save on their premiums by choosing the loss settlement roof insurance option. “This is a way for customers to choose to purchase less coverage and pay less money.” House & Home policies are available in 27 states so far, she adds.

A question of fairness

At the trade group the American Insurance Association, chief claims counsel Jim Whittle sees the actual cash value roof option as a good thing for consumers.

“A lot of folks like ACV because they realize a real serious savings in their premium, and as a result of that they are, in essence, self-insuring for a portion of the loss,” he says.

Even so, Whittle says he recently switched insurers for his Maryland home after he found a policy with replacement cost roof coverage for less than he paid for his previous ACV policy.

Consumer advocates find little to celebrate in the move toward actual cash value roof insurance coverage. Amy Bach, executive director of United Policyholders, a San Francisco-based insurance consumer group, says lower- and middle-income Americans and owners of older homes are being penalized unfairly.

“You always hear insurers say after every storm, ‘This wiped out our entire year of premiums.’ Well, do they give people money back on the years that they don’t file claims? No,” Bach says. “At the end of the day, (ACV) makes people feel like they’re getting cheated.”

Even Allstate agents are balking at the trend. “In our opinion, the House & Home policy is a major step backward for consumers,” Jim Fish, executive director of the National Association of Professional Allstate Agents, said in an email.

But Whittle says any perceived unfairness has a time-honored remedy for home insurance customers, especially when it comes to actual cash value vs. replacement cost roof insurance.

“Shop around,” he says. “We have 3,000 property and casualty insurers in the United States, so there is a lot of variability in their products and how they market, and that’s a good thing. That variability offers a lot of options in the marketplace.”

Frequently asked questions

Is roof insurance included in your homeowners insurance policy?

It depends on the peril that caused the damage and whether your policy has any exclusions. Depending on where you live, you may have a wind or hail exclusion. Moreover, most policies won’t cover needed repairs resulting from lack of maintenance or normal wear and tear.

Can you switch from actual cash value to full replacement cost?

Yes, most providers offer the option between the two types of coverage. However, replacement cost does cost more than actual cash value, so you will want to speak with an agent about the cost differences between the two.

Will insurance companies cover an old roof?

It depends on the insurance provider. Many companies simply won’t write a policy for a roof that’s more than 15 or 20 years old. If you don’t remember what type of coverage you have, refer back to your original policy or speak to a local agent.

Jay MacDonald


Jay MacDonald has been a contributing editor at Bankrate for more than a decade, infusing humor and human interest into a broad range of personal finance topics. A professional writer from age 16, he previously served as a reporter and editor for United Press International in Chicago and Seattle, 

Debt-To-Income Ratio Calculator

What is a debt-to-income ratio?

A debt-to-income, or DTI, ratio is derived by dividing your monthly debt payments by your monthly gross income. The ratio is expressed as a percentage, and lenders use it to determine how well you manage monthly debts — and if you can afford to repay a loan.

Generally, lenders view consumers with higher DTI ratios as riskier borrowers because they might run into trouble repaying their loan in case of financial hardship.

To calculate your debt-to-income ratio, add up all of your monthly debts – rent or mortgage payments, student loans, personal loans, auto loans, credit card payments, child support, alimony, etc. – and divide the sum by your monthly income. For example, if your monthly debt equals $2,500 and your gross monthly income is $7,000, your DTI ratio is about 36 percent. (2,500/7,000=0.357).Recurring monthly debti$Gross monthly incomei$CALCULATEDebt to income ratio i0 %

What factors make up a DTI ratio?

There are two components mortgage lenders use for a DTI ratio: a front-end ratio and back-end ratio. Here’s a closer look at each and how they are calculated:

  • Front-end ratio, also called the housing ratio, shows what percentage of your monthly gross income would go toward your housing expenses, including your monthly mortgage payment, property taxes, homeowners insurance and homeowners association dues.
  • Back-end ratio shows what portion of your income is needed to cover all of your monthly debt obligations, plus your mortgage payments and housing expenses. This includes credit card bills, car loans, child support, student loans and any other revolving debt that shows on your credit report.

How is the debt-to-income ratio calculated?

Here’s a simple two-step formula for calculating your DTI ratio.

  1. Add up all of your monthly debts. These payments may include:
    • Monthly mortgage or rent payment
    • Minimum credit card payments
    • Auto, student or personal loan payments
    • Monthly alimony or child support payments
    • Any other debt payments that show on your credit report
  2. Divide the sum of your monthly debts by your monthly gross income (your take-home pay before taxes and other monthly deductions).
  3. Convert the figure into a percentage and that is your DTI ratio.

Keep in mind that other monthly bills and financial obligations — utilities, groceries, insurance premiums, healthcare expenses, daycare, etc. — are not part of this calculation. Your lender isn’t going to factor these budget items into their decision on how much money to lend you. Keep in mind that just because you qualify for a $300,000 mortgage, that doesn’t mean you can actually afford the monthly payment that comes with it when considering your entire budget.

What is an ideal debt-to-income ratio?

Lenders typically say the ideal front-end ratio should be no more than 28 percent, and the back-end ratio, including all expenses, should be 36 percent or lower. In reality, depending on your credit score, savings, assets and down payment, lenders may accept higher ratios, depending on the type of loan you’re applying for.

For conventional loans backed by Fannie Mae and Freddie Mac, lenders now accept a DTI ratio as high as 50 percent. That means half of your monthly income is going toward housing expenses and recurring monthly debt obligations.

Does my debt-to-income ratio impact my credit?

Credit bureaus don’t look at your income when they score your credit so your DTI ratio has little bearing on your actual score. But borrowers with a high DTI ratio may have a high credit utilization ratio — and that accounts for 30 percent of your credit score.

Credit utilization ratio is the outstanding balance on your credit accounts in relation to your maximum credit limit. If you have a credit card with a $2,000 limit and a balance of $1,000, your credit utilization ratio is 50 percent. Ideally, you want to keep that your credit utilization ratio below 30 percent when applying for a mortgage.

Lowering your credit utilization ratio will not only help boost your credit score, but lower your DTI ratio because you’re paying down more debt.

How to lower your debt-to-income ratio

To get your DTI ratio under better control, focus on paying down debt with these four tips.

  1. Track your spending by creating a budget, and reduce unnecessary purchases to put more money toward paying down your debt. Make sure to include all of your expenses, no matter how big or small, so you can allocate extra dollars toward paying down your debt.
  2. Map out a plan to pay down your debts. Two popular ways for tackling debt include the snowball or avalanche methods. The snowball method involves paying down your small credit balance first while making minimum payments on others. Once the smallest balance is paid off, you move to the next smallest and so forth.

    On the other hand, the avalanche method, also called the ladder method, involves tackling accounts based on higher interest rates. Once you pay down a balance that has a higher-interest rate, you move on the next account with the second-highest rate and so on. No matter what way you choose, the key is to stick to your plan.’s debt payoff calculator can help.
  3. Make your debt more affordable. If you have high-interest credit cards, look at ways to lower your rates. To start, call your credit card company to see if it can lower your interest rate. You might have more success going this route if your account is in good standing and you regularly pay your bills on time. In some cases, you may realize it’s better to consolidate your credit card debt by transferring high-interest balances to an existing or new card that has a lower rate. Taking out a personal loan is another way you could consolidate high-interest debt into a loan with a lower interest rate and one monthly payment to the same company.
  4. Avoid taking on more debt. Don’t make large purchases on your credit cards or take on new loans for major purchases. This is especially important before and during a home purchase. Not only will taking on new loans drive up your DTI ratio, it can hurt your credit score. Likewise, too many credit inquiries also can lower your score. Stay laser- focused on paying down debt without adding to the problem.

Debt Adviser

Don’t be seduced by this debt plan

Dear Debt Adviser, I have about $50,000 of debt on credit cards. My credit rating is still high. I am thinking about a debt consolidation loan. Will that adversely affect my credit rating? — DT
Dear DT, The cliche… Read more


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