What types of income qualify on card applications?

Opening Credits columnist Eric 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 CreditCards.com.

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Question Dear Opening Credits,
Should I provide my salary or my household income when applying for a credit card? And would that be my gross or net income?   – Christine


Dear Christine,
Credit card issuers want to see your gross income when you apply. And the combination of your income and your spouse's earnings (should you have one) may be used as “household income.” If you are a stay-at-home spouse, a 2013 regulation allows you to list the wages of the working spouse on your card application as household income.

A simple question like this deserves a more comprehensive explanation. It’s important to understand why a lender wants to gather certain financial facts and traits about a prospective customer.

Here’s what you need to know about income requirements.

To a credit card issuer, the amount of money you earn is an essential qualifying factor. This helps the issuer determine how much of a credit line to offer you. If your income is big, a large credit limit might be granted because it would seem that you can afford payments on any debts you acquire with the card.

For example, let’s say your annual salary is $150,000. That would translate to $12,500 per month before taxes or anything else is taken out. Based on that figure alone, a $50,000 credit line might seem perfectly reasonable, provided your credit score is excellent. After all, if you charged the account up to the max, the minimum payment would be around $1,500. On the surface, that would be an affordable payment compared to the amount you earn. On the other hand, if your annual salary is $30,000, such a substantial credit line would not make mathematical sense. Instead, a card with a $1,000 credit line or so might be more reasonable.

A credit issuer goes by gross income because the net amount can fluctuate. Maybe one year you have a lot of money deducted from your paychecks because you’re repaying a 401(k) loan, your wages are being garnished for a debt you were sued for, your health insurance premiums are particularly expensive this year, or you’re maxing out your retirement plan contributions. All that can change, but your gross annual income is steady and measurable.

When you list income on the application, be inclusive. If you are adding in a spouse’s income, make sure you have access to those funds if and when the money is needed to pay the bill. “Household income” may consist of one or a combination of the following, expressed as an annual number:

  • Your wages
  • A spouse’s wages
  • Spousal support
  • Investment earnings and retirement plan distributions
  • Financial gifts (such as a cash allowance from a parent)
  • Social Security and government benefits

Aside from income, a credit card application will also ask that you provide details about your identity (your name, Social Security or Tax Identification Number, phone number and mailing address) and to indicate whether you’re a homeowner or a renter.

The rest of the vital information the issuer will need will come from your credit report and/or credit scores.

Consumer credit reports chronicle your credit management behavior. Specifically, the reports will indicate:

  • When you began using credit
  • How many credit cards and loans you have and have had in the past
  • The amount you currently owe
  • If you have a history of hanging on to balances or usually repay in full
  • Your detailed payment pattern
  • If any bills have been charged-off and are in collection
  • If you filed for bankruptcy (within the last 10 years for a Chapter 7 and seven years for a Chapter 13)

Of course, the credit issuer can just check your FICO and VantageScore credit scores instead of reading the reports. These credit scoring systems aggregate all that data, turning what is listed on your credit reports into risk scores.

In summary, if you make a lot of money, owe very little, and have a long background of using a wide variety of credit products responsibly, your credit limit will likely be higher. Oh, and the interest rate and perks on credit cards will be better, too!

See related: 10 things NOT to do when you apply for a credit card

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Updated: 02-18-2019