GDS VS TDS – What Do These Letters Refer To?

Getting qualified for any type of large purchase will usually bring some fulfillment to the buyer. Being finally approved to purchase a home or a vehicle can be a tedious process, and it’s important to know what information a lender will use to make their calculations. GDS VS TDS might be brought up when you’re visiting a lender. GDS and TDS stand for Gross Debt Service ratio and Total Debt Service ratio.

GDS Ratio And TDS Ratio

When a lender is doing calculations, they will use the Gross Debt Service Ratio and the Total Debt Service ratio.

Lenders will use these calculations to figure out the total percentage of annual earnings you can efficiently use to pay off any outstanding debts you have. They also use it for calculating if you’ll be able to qualify for loans you might be interested in applying for.

GDS and TDS calculations are fairly straightforward and easy to do for yourself, and they are very useful in managing your finances.

What Are The Calculations?

Many lenders will use a GDS and TDS calculator when they are doing calculations for a GDS mortgage and other large purchases.

To calculate the GDS in Canada, you’ll use the following formula:

Yearly mortgage payments + property taxes + heat / gross family income.

To calculate a TDS mortgage, you’ll use the following formula:

Yearly mortgage payments + property taxes +  heat + outstanding debts / gross family income.

The majority of lenders typically let the GDS and TDS ratio reach between 39% to 44%. If you’ve had issues with credit in the past, then the ratios for each of them will be lower.

Credit Checks

Lenders require a bunch of information in order to reach these ratios. One piece of information that’s critical is the credit check. Your credit score plays a part in the overall ratios, but also what types of other payments you’re already committed to making every single month. Some people may be making a decent salary that will lead to a good GDS, but if they have an outstanding line of credit, a large vehicle loan to pay off, and outstanding credit card balances on five different credit cards, these things will skew the TDS to a different level.

Lenders will also be interested in your repayment history. If they take a look at your credit report and see a number of instances where you weren’t able to make repayments on time, this can alter things, as well.

If your account wasn’t ever received by collections over utility bills or cell phone bills, then these things typically won’t be on a credit report, and as a result, won’t be used for calculating the debt service ratios.

It’s always good to keep an eye on your credit score and credit history. Since they play a large role in qualifying for purchases, knowing these details will give you the ability to ensure that you take the necessary action in keeping your credit rating as high as it can possibly be. If you think your credit rating might not be as high as it should be due to some missed payments over the last few years, then the best time to start increasing it is right now.

If you want to learn more about your credit score, browse over to the Government of Canada’s Office of Consumer Affairs site on the internet.


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