Why Do Credit Card Issuers Need to Know My Income?

income-credit-card-application

Ever wonder why credit card issuers ask for your income on the card application? You’re not alone. Fortunately, we tapped Eric Lindeen, vice president of marketing for ID Analytics in San Diego, California, which offers credit risk management scores to issuers, to explain why.

The Credit CARD Act of 2009 

The Credit CARD Act of 2009 requires a consumer’s ability to pay to be included in the decision of making credit card offers, Lindeen said, so there’s no question as to whether a consumer can afford to take out a loan. Credit issuers also ask for your income because it’s a simple way to determine an applicant’s debt-to-income ratio — that is, how much debt they’re carrying versus how much they earn. This ratio is another way for lenders to measure whether an applicant can handle the line of credit and its limit.

Before the law was passed, credit card issuers used various analytical tools to estimate applicants’ income, Lindeen said. That’s because credit bureaus only include information on the majority of someone’s debt, not their income and assets.

“Generally speaking,” he said, “the higher your score, the better your history of managing credit. A person might have $200,000 in credit card capacity and not use more than they need, but as you get to [people with] lower scores, there’s a higher risk they’ll use the credit.”

While credit issuers will invariably ask what you make, what really matters, Lindeen said, is your ability to manage your finances, and do it well.

That’s generally reflected by your credit score, which is comprised of five factors, including your payment history; your debt relative to your credit card limits; your credit history, or how long your credit accounts have been open; your mix of credit accounts; and how many times you’ve searched for new credit. (You can learn more about how to make sense of your credit score here.)

If you’re not sure where your credit currently stands, and want to find out, you can view two of your credit scores for free, updated each month, on Credit.com.

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Image: Eva Katalin Kondoros

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