This question has been asked so many times and this question we still get asked many more times to come. If you are among those asking does income affect credit score you are on the right article today because the question is going to finally get an answer? As I always see your credit score is one of the most important aspects of your financial life and you need to guide it positively.
Failure to take good care of your credit score will make you have a low or a bad credit score which will affect your financial life negatively. Unless you are a billionaire who is not planning on getting a loan or a mortgage. You need to constantly monitor your credit score and take note of things that can affect it negatively. So if you want to know if your credit score can be affected by your income let’s go ahead and jump in.
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Does Income Affect Credit Scores?
Most of the time people think that they are income directly affects their credit score but the answer to this question is no your income does not directly affect your credit score. Your income can only indirectly affect your credit score. This is because when you review your credit report you will take note that there is no mention of your income anywhere.
Although your income is not soon you can find your payment history and your debt history. You will also be shown all the various lawsuits that you have been involved in even your employer’s location and yours will also be shown. However, that does not mean that income does not indirectly affect your credit score. But if you are not able to pay your bills as a result of something happening to your income it will affect it.
What Can Affect Your Credit Score?
The fact that your income does not directly affect your credit score does not mean that your income is irrelevant to your credit score. We have seen above that a sudden decrease in your ability to pay bills as a result of your income can result in lowering your credit score. That being said there are other things that can affect your credit score older than your income which is listed below:
Payment History
One of the best factors that affect your credit score is your payment history. If you have been paying your credit card payment on time or not on time it affects your credit score positively or negatively. This is because timely payment will promote your credit history over time but even having a single missed payment will set you back.
Credit Card Balances
Your credit utilization ratio accounts for a whopping 30% of your credit score and if it climbs above 30% then your credit score is affected negatively. So it has to stay below 30% so that it does not affect your credit score.
Length of Credit History
This is simply the amount of time that you have had credit or since you started to build your credit financially. It makes up for 15% of your credit score.
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How Your Income Can Indirectly Affect Your Score
Now that we know that your income does not have a direct impact on your credit score, we now need to ask ourselves how it indirectly affects your credit score. Your income can indirectly affect your credit score as a result of your payment history. If something happened to your income and you are no longer able to pay your credit card bills and your loan it takes a deep in your credit score.
Because making timely payments is one of the aspects that determines your credit score. This is the only way your income can indirectly affect your credit score.
Do lenders consider your Income?
The fact that there is no direct impact on your credit score if you do not have an income does not mean that lenders take it lightly when giving you a credit card or a loan. One of the most important factors that lenders like to see in a prospective borrower is the income and the length of income history
If you have a steady income for at least 2 years it is a good look on your credit report and appetizing to lenders. This means that lenders do consider income a lot which will determine the loan interest rate you will get along with other factors.
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FAQs
Will my credit score go up if I make more money?
Your income will not affect your credit score directly. But if you make money and it leads to you making timely payments of your bills and loans which you have not been doing then over time it can improve your credit score. But if you make money it does not also directly affect your credit score just as if you do not make money.
What affects credit score the most?
Your payment history is the most important factor that affects your credit score. This is because lenders do not want to lend to someone that does not pay back because they are in the business of making money. So if you have a poor payment history it will directly affect your credit score by lowering it so that other lenders will know that you are a risk-worthy person.
Is it better to pay off the credit card in full or make payments?
It is better to make your credit card payment in full than 2 carryover balances to the next month which has generally going to attract interest. Therefore if you can make full payment of all the outstanding balances on your credit card in full at once then do so to avoid getting charged interest for every month you do not pay.
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