How Do Credit Card Companies Verify Income?

How Do Credit Card Companies Verify Income?

April 14, 2020         Written By Tracy Farnsworth

A credit card application asks many questions and most of them are simple to answer. Filling out your name, address, date of birth, SSN, and phone information takes little time and effort. It is information you know without needing to take time to look up. Other questions can be a bit harder to answer. One question that sometimes trips people up is the question about income. How does a card issuer verify the income amount that you provide? You may know your base income, but what else is the issuer seeing during the income verification process? How do credit card companies verify income?

How Income Verification Works

In most cases, an applicant’s income is not verified with employers, spouses, or other places income comes from. While a car loan or home mortgage does require income to be verified, card issuers tend to trust what you put on an application. You apply for a credit card and the issuer trusts that you have put an accurate income in the box. This does not mean you can exaggerate the numbers. The issuer will look at your car loan and rent/mortgage to get a general idea of how much money you earn. While this is the normal process, there are exceptions to be aware of.

Featured Fair Credit Card
Top Features :All credit types welcome to apply!

American Express is one of the exceptions. The company has a reputation for performing financial reviews on its cardholders. If you are selected for this review, you must give permission for American Express to view your tax returns. You fill out the form the company sends you and wait for the review to be completed. Your accounts will be suspended until this process is complete. The income you show on your tax returns needs to be close to what you have claimed for your accounts to be unfrozen.

You may also find a credit card issuer will ask for income verification if you have charged up a lot of debt and seem to be having a hard time paying it off. If you are consistently late, the company may opt to freeze your accounts while verifying you have the funds needed to pay it off. It is a protective measure credit card companies take to prevent customers from going into default.

Some issuers will ask for checking or savings account numbers and permission to view the accounts. This income verification process is not common, but you may run into it. It can be a little alarming to allow a company to access your accounts to check balances, but it is a process that some issuers use with credit cards for people with bad credit.

Understand What Counts as Income and What does not

Thankfully, credit card issuers are extremely generous when it comes to the types of income you are allowed to include on your credit card application. You are counting your regular income from the job you hold, but you can also include income from investments, child support/alimony, and government benefits. If you have won a lottery and get weekly or monthly payments, you are welcome to include that income as well. The Consumer Financial Protection Bureau also issued a rule allowing card issuers the right to consider household income. If you are married or have a partner and can access that person’s income for bills, it is allowed to be included on your credit card application.

How do you come up with your monthly gross income? If you are not salaried, take your hourly pay and multiply it by the number of hours you work. For example, full-time (40 hours) employees would multiply their hourly wage by 40. Take that result and multiply it by the number of weeks in the year (52) to get the annual income. Take the annual income and divide it by the number of months in the year (12). That gives you the gross monthly income. It is not likely, but if the application asks for your net income, take a pay stub and look at the amount you were paid after taxes and expenses like insurance or 401K were taken out. Add a month’s worth of those payments to get the net income.

What does not count as income? If you have student loans and use that money to pay for housing while you are in college, you cannot count the loan money as income even if it is paying your bills for now. If you took out a loan during a temporary lay-off to have money for rent and utilities, you cannot count those loan funds as income. In general, the money you borrow is not income.

Featured Fair Credit Card
Top Features :All credit types welcome to apply!

Why it is Important to Provide Your Correct Income on a Credit Card Application

It is always best to tell the truth and avoid exaggerating. That does not mean everyone follows that general rule of life. If you do opt to exaggerate your income, there is the chance that the credit card issuer will verify your income down the road. If your income was not verified during the application process, it could be verified weeks or months later. You have no way of knowing if or when this will happen. If you have exaggerated and get caught, it could lead to problems. To start, lying on a credit card application is a form of fraud and it is illegal.

If you commit financial fraud, you can be fined or jailed. it is not always the route a credit card issuer will take, but it could happen. There have been cases where people lied about their income, received large lines of credit, didn’t pay it back, and were convicted of financial fraud. U.S. Code § 1644 (Fraudulent use of credit cards) states that knowingly using or attempting to use a fraudulently obtained credit card can carry fines of up to $10,000 and/or up to 10 years in prison. Lying just is not worth it.

The Best Ways to Improve Your Chances of Being Approved for a Credit Card

Do not exaggerate your income. There are better ways to improve your chances of being approved for a credit card account. Look at the factors that determine your credit score. Work on getting your score raised by paying attention to those key criteria of paying on time, keeping a favorable credit utilization ratio, having a long history, and not applying for excessive amounts of credit.

First, pay down current credit card balances as much as you can. By lowering the amount you owe, you increase your available credit. One of the biggest factors in a credit score is your credit utilization. If you have a $2,000 credit line and have made $1,700 in charges, you only have $300 free. If you pay off more and get the amount you have charged down to $500, it looks much more favorable to a credit card issuer. Even if you pay off your credit cards each month, it does show up as debt on your credit report until the full payment is reported by the card issuer and added to your credit history.

Second, make sure your debt-to-income (DTI) ratio is not harming your chances. DTI is a ratio of the income you make vs. the debt you owe. Say you have a car loan, mortgage, and credit card payments that total $1,500 per month while your monthly income is $3,800. Your DTI is 1500 divided by 3800 or 39.5%. While credit card issuers may not be as picky as a mortgage lender, they still do not want to see a DTI that is too high. Generally, the Consumer Finance Protection Bureau recommends you keep it to no more than 43%. A credit card company may be a little more lenient, but it is still a good number to aim for.

Third, go over your credit report and look for late payments. If there are late payments, verify that the payment was late and that it is an account you actually hold. If someone fraudulently took out a loan or line of credit in your name and is not making payments, you need to get that matter cleared up. File an identity theft report with the authorities and keep that report number as proof that you are trying to get the matter resolved. If you made a late payment, be ready to explain why. It may not help, but it is better to be honest.

Featured Fair Credit Card
Top Features :All credit types welcome to apply!

Fourth, try to build a long history with a bank or card issuer. The amount of time you are with a bank counts as a positive on your credit report. The longer you are with a company, the more advantageous it is. When you are looking for a credit card, see if you can find one with a bank you know you will be happy to stay with for years.

Fifth, the more credit cards and lines of credit you apply for in a short amount of time, the worse it looks. If you are applying for a credit card, research the credit cards with the features and rewards that appeal to you. Go through the pre-qualification process, if it is an option, as that soft inquiry won’t impact your credit. Note that pre-qualification does not guarantee approval. Once you fully apply and a credit report is pulled, the inquiry will show up on your credit history. It benefits you to do your research first, find the best credit card for your circumstances, and apply. Be honest about your income and see what happens. With the number of unsecured and secured credit cards on the market, you are going to find a card issuer that is willing to work with you. Honesty is the best way to get the credit you deserve.

The information contained within this article was accurate as of April 14, 2020. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About Tracy Farnsworth

Tracy Farnsworth went straight from a business track in high school to a full-time job in mortgage banking in Burlington, Vermont. After having children, she built a freelance career in content writing and took online classes as time allowed. She completed Social Media Marketing and Digital Marketing certificate programs with Ireland's online Shaw Academy and completed several courses in SEO and analytics. In her free time, she's the “mom” to a very clingy rat terrier, and the pair walk at least a mile every day. She's also a novice baker who is trying to master the art of sourdough bread.
View all posts by Tracy Farnsworth