Why is my credit card company asking about my income?
Rules under the Credit CARD Act dictate card issuers should ask for your income to offer you a credit limit increase
Fred O. Williams is senior reporter for CreditCards.com. A business journalist since 1987, his work has appeared in Kiplinger's Personal Finance magazine, the Buffalo News and USA Today.
Why does my credit card account in good standing ask about my income?
Card issuers need income information to offer an increase in your credit limit, under the Credit CARD Act's "ability to pay" rule.
You can choose to skip questions by your card issuer about your income, but that may affect offers to increase your credit line.
Voluntary question helps you qualify for higher credit limit
Under rules implemented by the Credit CARD Act, banks must consider your ability to pay your debt before issuing the card, and before granting an increase in your credit limit.
- Under the rule, the card must consider at least one of the following metrics:
- The ratio of debt obligations to income, debt to assets or "the income the consumer will have after paying debt obligations."
The rule says cards are allowed to rely on the income data that you provide.
What issuers can see to verify your income
Card issuers do review your credit report, but credit reports do not have data about your income, and may not even list your employer.
That is not the end of the story, however.
Although card issuers rarely confirm income, "they can impute validity in ranges, such as using trend data to assure that income is in line with expectations," said Brian Riley, director of credit advisory service at Mercator Advisory Group.
For example, "a high school teacher’s income at $150,000 might be questioned, though a college professor in that amount would be acceptable."
The regulations mean telling your income is mandatory on a card application, but voluntary after you have been approved and opened the account.
Of course, if you decide to skip the income question, the card issuer may not offer to increase your credit limit.
Inflating income can backfire down the road
If you do answer the income question, there are good reasons to be accurate, even though the figure isn't likely to be checked.
"Income is self-reported so the data are certainly vulnerable to overzealous consumer interpretation," Riley said. But if your account is ever subject to collection action, or if you file bankruptcy, "issuers have a notation on file with a claim for cardholder income."
- In these situations, any inflated income claims that you made will harm your chances of erasing the debt, or a portion of it.
- In the same way, the exaggerated income claim will work against you if you ever try to negotiate a settlement of the debt, or a workout arrangement.
Tip: A modification to the Credit CARD Act made in 2012 avoided penalizing a non-working spouse for not having "individual" income. This means when your card company asks for your income, you may include your whole household income as part of your answer.
Different ways to think about income
What measure of income should you use? Card issuers avoid using specific definitions of income in their questions to avoid confusion.
And their instructions vary widely.
- Chase card applications ask for "total gross annual income" and whether any of it is non-taxable.
- Citi applications ask for total annual income, and the amount of your monthly rent or mortgage payment.
Card users may wonder whether to give last year's income per tax filings, or an estimate of this year's income – or whether to include one-time income sources such as a bonus that's unlikely to recur.
You can ask the card issuer for guidance – or just be conservative and consistent in stating your annual income.
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