When applying for a credit card, there are many important factors. One obvious factor is your income. But how does the income element compare to other things considered during the application process, such as a credit score?
Criteria Banks Use to Approve You for a Credit Card
Credit card issuers will each have their own set of criteria when evaluating applicants. But in general, when you apply for a credit card, the following factors are typically considered for approval:
- Credit score: While it’s not the only thing considered, your credit score is a big component of whether you’re approved for a new credit card. Credit scores show lenders what kind of risk you could be to them, and they use it as part of an equation to determine how likely you are to pay off your debt.
- Delinquencies: If you have late payments listed on your credit reports, it could prevent you from being approved.
- Hard inquiries: Hard inquiries can stay on credit reports for around two years. If you have too many hard pulls on your report, it can indicate to lenders you’re in a situation where you need access to funds, but might not be able to pay them back.
- Debt: A lender will look at the total amount of credit you are using set against the total amount of credit you have available. It will also consider all debts in total.
- Income: If a lender asks you to submit your income, it’s usually a self-reported element, and they will use it to compare against your current debt. This is called the debt-to-income ratio. If you have one area that’s weaker on your credit report, disclosing your income may help make up for it.
The CARD Act, the CFPB, and Household Income
The Credit CARD Act was introduced in 2009, and under the law, lenders can extend credit only when it appears to them that the borrower is going to be able to repay it.
An amendment to the CARD Act, issued by the Consumer Financial Protection Bureau (CFPB), made it so borrowers age 21 and up can list any income they have access to. According to the CFPB, the objective was to allow stay-at-home applicants to include their household income when applying for a credit card. Household income under this amendment can include: personal income, income from a spouse, gifts or allowances, trust fund or retirement distributions, scholarships and grants, and Social Security income.
Borrowers age 18 to 20 are only allowed to report income that’s considered independent (such as personal income, scholarships, and grants).
Can You Get a Credit Card Without a Job?
Along with stay-at-home parents and spouses, there are other scenarios where someone might not be employed but wonder if they can be approved for a credit card.
For the most part, having a job isn’t a requirement to get a credit card. You can enter your income from the various sources listed above, and if you’re over the age of 21, you can list someone else’s income if you reasonably believe you have access to it.
Another option when you want to get a credit card without a job is to have someone else be a joint account holder. Or, you can ask someone to apply to be the primary cardholder and put you as an authorized user. As an authorized user, you can use the card, but keep in mind you won’t have the same repayment obligation as the primary cardholder.
Should You Use Household Income or Individual Income on a Credit Card Application?
People often wonder whether they should use household income or individual when submitting a credit card application. It’s not uncommon to inflate income and get a higher amount of credit. However, you are always running the risk of not being able to pay it back. Also, if you inflate your income, you may have problems if you were to file for bankruptcy.
If you file for bankruptcy after obtaining debts through false claims, that credit card debt can’t be wiped out. It’s always best to be as accurate as possible when reporting your income to avoid overextending yourself, and it will help to protect you if the need to file for bankruptcy arises.
Author: Jeff Gitlen
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