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On the home page of the website, DebtScore.com claims that lenders look at your debt score. My big question is: “Which lenders?” It doesn’t say.
The website does not ask for your name or social security number, and does not pull your credit file at all, so your debt score is derived from information you provide, which automatically calls into question the validity. Unless you’ve been budgeting and tracking finances for months, most people do not have an accurate picture of their financial situation.
I’m a junkie for these kind of financial tracking websites, but this one felt like a waste of time.
The only good thing? The service is free and you don’t need to enter confidential data. However, be cautious. Faulty information about your debt can either paint a rosier-than-reality picture about your financial situation, or make you feel disheartened for no good reason.
You can calculate your real debt-to-income ratio by looking at your total amount of debt versus your gross (before taxes) income. Lenders look for no more than 36% of your income to go toward debt, with no more than 28% toward your housing.
Debtscore.com, created by Oweing.com, a personal finance and budget Website community, advertises that: “Your Debt Score affects lenders’ decisions. Credit scores tell only half the picture.” It claims that lenders use your “debt score” to determine whether or not to give you a loan.
It is true that lenders, especially mortgage lenders, may look at your debt-to-income (DTI) ratio before determining whether or not to give you a loan, along with considering other expenses. But what is this “debt score?”
Your debt score takes into account a number of factors, starting with the common debt-to-income ratio mortgage lenders use, but will also look at factors like your monthly expenses, your age, and your planned retirement age to determine your “debt score.”
A big flaw of the website is that it relies on the accuracy of the information users provide. If you’re not currently managing your money well, you may not provide honest answers, and then your debt score will be inaccurate.
Additionally, although you enter minimum monthly payments for your credit card, there’s no algorithm determining how this number will drop as you pay down your debt. The system and metrics just seem flawed. But let’s take a look at how the website works.
How This Site Works
Sign up for a free account with an email address and password, and then begin filling in some basic financial and personal information, including your age, gender, college education, zip code and planned retirement age. (Gender and zip code seem to be for demographics purposes, because I don’t know how they could factor in to your debt score.)
The website does not ask for your social security number or even your name. It provides your debt score based on information you provide about your income and expenses. I found it confusing that they separated homeowners’ insurance, mortgage payments and property taxes, since most people pay these together in one monthly payment and mortgage lenders consider these factors to approve your loan.
Also, I’m not sure exactly what “other monthly payments” means. Is that the sum total of all your living expenses? Or just debt? Although it asks for your monthly minimum payments for your credit cards, you do not have to enter a total for payments on credit cards paid in full each month.
Finally, nowhere in this information does DebtScore.com ask about your total credit card debt, personal loans, or interest rates.
Once you plug in all this information to the best of your knowledge, Debtscore.com gives you your “debt score,” a number ranging from 0 to 100. (Scores under 34 are good, according to the site.) You also receive letter grades for your “housing debt,” “lifestyle debt” and “education debt.”
When I entered my figures, I got an “A” for housing, a “D” for lifestyle, and an N/A for education. Since I don’t have any student loans or education expenses, I would think that should give me an A. But instead, it doesn’t factor into my total score. My numerical debt score was 36… whatever that means.
I’m not giving this website a poor review because it gave me a “D” when it comes to my own debt. I just don’t see how this number can help anyone looking for a loan or working to get out of debt and I don’t understand how the site provides any information you can’t get — in a better format — from an actual budgeting website like Mint.com.
- Forces you to take a good look at your finances by entering all your monthly expenses
- No name or social security number required
- Methodology to calculate debt score is questionable
- Lenders don’t look at this score