There may have been a time when you considered fudging the numbers a bit on a credit application just to tilt the decision more in your favor. After all, what’s the big deal about adding $10,000 to your income, neglecting to list the full amount of your debt, or embellishing a little on your employment status?
It could mean the difference between approval, decline, or even a higher credit line. It could also mean serious jail time and a huge fine if you were to get caught. Lying on a credit application is a big deal. It’s major fraud, a federal crime punishable by up to 30 years in jail and as much as $1 million in fines. That’s a costly white lie.
What’s the Big Deal?
As you know, lenders use your income as a measure of your capacity to handle a certain amount of credit. They do everything they can to minimize their risk. Credit fraud – which amounts to obtaining credit under false pretenses through misrepresentation – costs the banking industry tens of billions of dollars a year. Because most lenders are connected in some way to the Federal Reserve System, they can rely on the full weight and resources of the federal government to go after fraudsters. Credit fraudsters are treated with the same severity as identity thieves and check forgers.
What Are the Chances of Getting Caught?
In all likelihood, if you were to embellish your income on a credit application by a few thousand dollars, it may go unnoticed. Such small discrepancies either aren’t picked up by lenders or they might consider it to be within the margin of error.
However, if you claim $40,000 on your tax return while stating on your credit application that you earned $100,000, that might get a lender’s attention. However, you shouldn’t rely on the smallness of your lie to escape scrutiny because, if you are caught, you would be treated no differently than someone who lied big on their application.
After the enactment of the Credit CARD Act of 2009, financial institutions have come under increasing pressure to ensure that borrowers have the financial capacity to pay their credit card bills. Creditors are increasingly asking for documentation to support income claims, and the industry is investing heavily in data analysis systems to detect discrepancies and variables in an applicant’s credit report.
For instance, the amount you pay on a car loan or a mortgage can give them some indication of your income. If a credit card company finds that you have amassed more debt than you reported on your application after an annual credit review, it could come back to you and ask for income verification.
Another way lenders have caught credit fraudsters is through bankruptcy proceedings. If you file for bankruptcy claiming a high amount of debt in relation to your income, the bankruptcy court could look back on your credit applications to determine how you came to amass it. They can compare the income you claimed on your applications to federal tax returns, and if there is a discrepancy, charge you with fraud under federal statutes.
It’s Just Not Worth the Risk
The bottom line is financial institutions are stepping up their game to nail fraudsters. While the odds of getting caught are still somewhat remote, you have to ask yourself if it is really worth lying on a credit card application. Keep in mind that even if the fraud is not spotted at the time of the application, the odds increase over time because creditors can review your credit situation at any time. If any red flags pop up, they can take a closer look when they need to.
If you have to lie about your income to obtain credit, it means you probably don’t have the financial capacity to take on additional credit. You would be better off waiting until you are in a better financial position before applying for additional credit. You can improve your chances of being approved for credit without having to exaggerate your income.
Work on paying down your credit card balances and relying less on credit to pay your monthly expenses. If you get denied for a credit card, you could get reconsideration if you agree to close a credit card account or have a credit balance transferred to your new card. Anything you can do to reduce the risk exposure of the credit card issuer improves your chances of obtaining new credit.