Do you list gross or net income on card applications?

By Erica Sandberg

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question Dear Opening Credits,
When applying for a credit card, does "total annual income" mean gross or net amount on the application?  -- Sherry

Answer Dear Sherry,
Those credit applications can be a little confusing, especially the income portion. So here's the scoop, not just about gross versus net, but the other requirements, too.

Credit issuers determine creditworthiness based on several factors and an important one is the amount of money you earn. Gross income is your salary or wages before deductions like taxes and retirement plan contributions are taken out. Net income is what you're left with after those deductions. On a credit application, you'll use the gross figure. Most ask for it to be expressed in annual terms, so if your gross monthly pay is $2,500, multiply that figure by 12 and you'll have the annual ($30,000 in this example).

Mind that the income doesn't have to be from a job. It could be student loans or investment distributions Be brutally honest, though. Never fluff numbers. Doing so is considered fraud, and that can come back to bite you if you fail to pay the account as agreed and the issuer discovers the misinformation.

Other financial data you might be asked to list on the application includes whether you rent or own your home, how long you've been at your current job, as well as your Social Security number so the issuer can pull your credit report.

Once you submit the application, the issuer has the authorization to check your credit history and credit scores.

Based on the combination of your income, expenses and debt load (which it will see on your credit reports) the issuer will have a decent idea of the credit line you can handle. But will you really keep this new account in good standing? That's where your credit scores come in.

If your credit reports are rife with problems such as skipped payments (especially within the past year or so), high debt compared to credit limits, collection accounts and bankruptcies, your credit scores will be poor. Even if you make fantastic money and have very low expenses, you appear to be a risky customer. After all, if you didn't pay other creditors per their agreements, why would you suddenly be responsible now?

For this reason, when you are approved for a credit card, be careful to always use it well. That begins with you understanding your true financial capabilities.

While the issuer needs to know your gross income, it's more important that you concentrate on your net income. Construct a realistic budget by listing all your bills expressed monthly , then subtract them from what you bring home every month. Make sure you have enough cash left over to set into a savings account. This way you won't get into the dangerous habit of charging what you can't afford, and will have an emergency fund to tap into if necessary.

Oh, and when you do get that card, pay on time and send the total amount due. Your credit rating will rise and you'll avoid getting into fee-swollen debt that will eat into your precious paychecks.

See related:  Applying for a credit card? Your odds for approval, 10 things NOT to do when you apply for a credit card

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When applying for a credit card, does total annual income mean gross or net amount on the application? 

Published: February 17, 2016

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Updated: 10-24-2016

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