Annual Income for Credit Card Applications If you have applied for a credit card before, then you definitely should remember seeing this question that has to do with your annual income and feeling quite puzzled.
Or maybe you are yet to apply because you are just coming out of school and are earning minimum wage, or perhaps not employed at the moment. The deal here is How do you answer questions that have to do with your income if you don’t have much at the moment?
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Annual Income for Credit Card Applications
You would most likely be thinking of things like, “What is a good annual income to declare to get a credit card?” or “Can I lie about income on a credit card application?” Credit card veterans might feel that they could have done a lot better with those applications and may still have questions.
Or if you happen to be a newbie in the anticipation stage, you may be wondering how to apply for a card but is not sure. Maybe it is even holding you back from applying. Well, there are some ideas concerning what to do if either scenario sounds like you. Keep on reading on ways to talk about your income on credit card applications when income is skimpy or hiding just around the corner.
Why Do Credit Cards Ask for Income on Applications?
Credit card issuers are not asking about your income because they are being snoopy. The truth here is that they are being legally responsible and are following the credit card act of 2009. Credit issuers are obligated legally to request your income, as they can only lend you money if they are sure, you can pay it back.
While the law does not indicate any specific income requirements, it actually states that banks can only lend you money if they are sure that they can make their monthly payments. And in other to do that, they need to know how much money you earn.
Aside from fulfilling legal duties, your income levels would also help credit card companies determine how high your credit limits would be. Because just like what the government wants, they want to ensure that you can pay them back and part of this means not extending to you more than what your credit warrants.
Types of Income That can be added to your Credit Card Application
You can choose to add several types of income. A higher income would generally help your approval odds and would allow for higher credit limits. Let’s take a much closer look at what that means.
If you happen to 21 or older, you can count any sources of income to which you have “reasonable expectation of access.” Below are some that you can count:
- Part-time or full-time income
- Alimony or child support
- Gifts or trust fund payouts
- Social Security payments or pensions
- Retirement fund payments
- Investment Income
If you are living with a partner or spouse, you can also count his or her income toward your “household income,” all thanks to a consumer financial protection Bureau (CFPB) amendment in 2012.
If you are not yet above the age of 21, you only get to count “personal income” from your job, scholarships, or grants. You cannot include your parents’ income unless they cosign for the credit card.
How Do You Calculate Your Income for Credit Card Applications?
Sometimes, credit card issuers would request a specific type of income, and other times, they keep it vague. So determining which number to scribble in the income box can be quite confusing.
Here are some terms that you might see about your annual income on credit card applications:
Your total annual income before anything’s taken out. unless the application specifies otherwise, this is usually what the issuers want to see.
Your gross income, minus taxes and other expenses. To put it lightly, what you would end up taking home in your paycheck, multiplied by the number of times that you would be paid each year.
Your Gross annual income is divided by 12.
How Much Annual Income Do You Need to Be Approved for a Credit Card?
Unfortunately, if you are searching for a particular number, there is no mandated total annual income for credit card approval. Credit card issuers look at a range of details, that would be reviewed below.
One important factor that can be calculated by yourself is your debt-to-income ratio, also known as your DTI.
- Let’s say you earn About $36,000 a year, or $3,000 per month
- You have a monthly payment on your auto loan ($200), student loan ($250), and mortgage ($800), for a total of $1,250.
- When you divide your monthly debt ($1,250) by your monthly income ($3,000), you get a DTI of around 42%.
For your Best chance of getting approved for a credit card, you would want your DTI to be as low as can be. The CFPB stated that people with a DTI of more than 43% cannot qualify for a mortgage, for example, although this does not apply to credit cards (there is no particular DTI value for you to get your credit card approval).