The Indebtedness sub-tab provides critical insights into an applicant's financial obligations and their ability to manage debt responsibly.

By using debt ratios, it is easier to assess whether an applicant is over-indebted. As a result, Loans Officers have a clearer perspective about an applicant's repayment capacity relative to their income.

This article explores the three debt ratios displayed in the Indebtedness sub-tab, explains how they are calculated, and outlines what the ratios reveal about credit risk.

Monthly Debt Ratio

The monthly debt ratio measures the proportion of an applicant’s monthly income used for repaying debts.

How it's calculated:
Total monthly payments on active accounts ÷ declared monthly income.

Key considerations:
- Credit cards and overdrafts: These are not included. This is because there is no fixed payment. Payments vary monthly.
- First Mortgages: These are excluded because rental payments are not included in the calculation. Including mortgages would create an unfair comparison between homeowners and renters.
- Missed and defaulted payments: Are excluded because they no longer contribute active repayments. Furthermore including defaults may over-estimate indebtedness because these accounts are often passed to debt collectors who do not have a responsibility to update the credit file.

The monthly payments total is taken from the active accounts payment column.

In the example, below, there are three accounts with payment values but mortgages are excluded leaving £120 (unsecured loan) + £753 (second mortgage) = £873

Example:

Bob earns £1,500 per month and pays £500 toward debts.
Debt ratio: £500 ÷ £1,500 = 33%.
Alice earns £1,500 per month but pays only £200 toward debts.
Debt ratio: £200 ÷ £1,500 = 13%.

Higher ratios suggest less disposable income. This can result in repayment difficulties, leading to higher lending risk.

Annual Debt Ratio

The annual debt ratio examines the relationship between total debt balances and an applicant's yearly income. This provides a broader, aggregated, view of their indebtedness.

How it's calculated:
Total debt balances (including loans, credit cards, and overdrafts) ÷ declared annual income.

Exclusions:
- First mortgages: Treated like rent and excluded.
- Utilities and regular bills: These are not considered debts.

In our example decision we can add the active balances and the current balances of the default accounts together to give us the total debt balances as so:

The total current balance of defaults is £33,375

The total owed on active accounts (excluding first mortgage) is £75,640

£33,375 + £75,640 = £109,015

£109,015 ÷ £31,095 = 351%

Example:

Bob owes £20,000 and earns £24,000 annually.
Debt ratio: £20,000 ÷ £24,000 = 83%.
Alice owes £10,000 and earns £30,000 annually.
Debt ratio: £10,000 ÷ £30,000 = 30%.

Higher annual debt ratios may indicate over-indebtedness, limiting the applicant's ability to take on additional credit.

Revolving Debt Ratio

The revolving debt ratio evaluates how much of their available credit an applicant is using on revolving credit accounts (e.g., credit cards, overdrafts). This ratio is a strong indicator of financial stress.

How it's calculated:
Total revolving balances ÷ total credit limits.

Example:

Alice has a £9,000 balance on credit cards with a total limit of £10,000.
Debt ratio: £9,000 ÷ £10,000 = 90%.
Bob has a £1,000 balance with the same credit limit.
Debt ratio: £1,000 ÷ £10,000 = 10%.

Ratios exceeding 70% suggest reliance on revolving credit, often linked to financial strain or limited cash flow.

The revolving debt ratio provides an overall snapshot of credit card usage. However, examining individual card behaviour over time can reveal additional patterns of financial stress.

Credit Card Balances

NestEgg also offers rules that assess persistent high utilisation patterns on individual credit cards over time.

These rules—REF30 (Refer) and DEC20 (Decline)—help identify applicants who may be experiencing ongoing financial pressure by maintaining high balances across multiple credit cards for extended periods.

How the rules work

Unlike the revolving debt ratio which sums all credit card balances and limits to produce a single percentage, REF30 and DEC20 evaluate each credit card account individually to detect sustained utilisation patterns.

The rules assess:

Whether each credit card's utilisation percentage meets or exceeds a specified threshold (e.g., 75%)
Whether that high utilisation has persisted for a specified number of consecutive months (e.g., 2 or more months)
How many accounts meet both criteria

If the number of accounts with persistent high utilisation meets or exceeds your configured threshold, the rule triggers.

Data source: Credit bureau balance history

Configurable variables

Each rule can be customised to match your risk appetite:

Utilisation percentage: The balance-to-limit threshold that indicates concern (e.g., 50%, 75%, 90%)
Consecutive months: How long the high utilisation must persist (e.g., 2, 3, or 6 months)
Number of accounts: How many cards must show the pattern before the rule triggers (e.g., 1, 2, or 3 accounts)

Industry context: Utilisation thresholds

Credit card utilisation is widely recognised as an indicator of financial health:

Under 25%: Low risk - indicates responsible credit management
25-50%: Moderate risk - suggests increasing reliance on credit
50-75%: High risk - indicates potential over-reliance on credit and financial pressure
75-90%: Very high risk - strong indicator of financial strain
90-100%: Severe risk - applicant heavily dependent on credit, high default risk

Persistent high utilisation—especially across multiple accounts—often signals that an applicant is using credit cards to manage cash flow shortfalls rather than for convenience.

Example

Sarah has three credit cards reported on her credit file:

Card A: £2,800 balance / £3,000 limit = 93% utilisation for 4 consecutive months
Card B: £1,200 balance / £5,000 limit = 24% utilisation
Card C: £3,600 balance / £4,000 limit = 90% utilisation for 3 consecutive months

Your rule is configured as:

Utilisation threshold: 75%
Consecutive months: 2 or more
Number of accounts: 2

Result: Cards A and C both meet the criteria (≥75% for ≥2 months). Since 2 accounts meet the threshold, the rule triggers.

You can review the utilisation pattern of each credit card account in the Credit - Payments sub tab, by selecting the account to reveal the balance and limit history.

What to be mindful of

Temporary vs. persistent patterns: The rule focuses on sustained high utilisation over the configured period. It cannot distinguish between temporary spikes (such as planned large purchases) and genuine ongoing financial difficulty.
Credit limit reporting: Utilisation is calculated by comparing reported balances to reported credit limits for each account within the configured time frame.
Defaulted accounts: Defaulted credit card balances are included in the evaluation, unless the associated credit limit is reported as zero. Cards with a £0 limit are not included.

When to use these rules

REF30 and DEC20 are particularly valuable when:

You want to identify applicants showing signs of prolonged financial stress beyond what a single snapshot reveals
Your lending policy treats persistent credit card reliance as a distinct risk factor
You need to differentiate between applicants who occasionally use their full credit limit versus those who consistently maintain high balances

By combining these rules with the overall revolving debt ratio, you gain both a comprehensive view and the ability to detect specific patterns of concerning credit card behaviour.

Why this matters

Debt ratios are critical indicators of financial stability and repayment capacity. They help identify:

Applicants under financial strain: High monthly or revolving debt ratios may signal difficulties managing current obligations.
Over-indebtedness: Elevated annual debt ratios could indicate limited room for new credit.
Healthy credit behaviours: Low ratios often reflect better financial management and reduced risk.
Persistent high utilisation patterns: REF30 and DEC20 rules help identify applicants experiencing ongoing financial pressure that snapshot ratios alone might miss.

By understanding and applying these insights: