Can I Use Household Income for a Credit Card Application?
Understand the rules for using household income on credit card applications. Learn what qualifies and how to report it accurately.
Understanding how income is viewed for credit card applications is an important aspect of personal finance. Lenders primarily consider an applicant’s ability to repay debt. Knowing what income sources are permissible and how to report them accurately is fundamental for applicants seeking new credit, as it impacts eligibility and terms offered.
What Qualifies as Household Income
Household income, as it pertains to credit card applications, is defined by regulations such as the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) of 2009. For applicants aged 21 and older, this includes any income to which they have a “reasonable expectation of access” and a “reasonable expectation” of using to pay the debt.
Qualifying income sources include wages, salaries, and income from self-employment, such as earnings from contract work or side gigs. Retirement income, like pensions, Social Security benefits, and distributions from 401(k)s or IRAs, are also accepted.
Other sources include investment income, such as interest and dividends. Alimony, child support, and regular government benefits like Social Security Disability Income (SSDI) may also be reported. Consistent allowances, gifts, and trust fund distributions are also permissible. All reported income must be legal and verifiable.
Whose Income Can Be Included
Beyond an applicant’s individual earnings, the income of other household members can often be included as part of household income for credit card applications. This is largely due to the 2013 amendment to the CARD Act, which expanded the definition of ability to pay.
This provision is particularly relevant for spouses or domestic partners, allowing their combined income to be reported if the applicant has shared access to those funds, such as through a joint bank account. This change was beneficial for individuals who might not have independent income, such as stay-at-home parents, enabling them to establish their own credit.
For adult children or students over 21 living at home, a portion of parental income can be included if there is a clear expectation of access, perhaps through a regular stipend or shared account. However, applicants aged 18 to 20 can only report their independent income, such as from employment, scholarships, or grants, and cannot include income from other household members.
How to Report Household Income
When completing a credit card application, applicants should report their total gross annual household income. Gross income refers to the amount earned before taxes and other deductions are taken out. This figure provides lenders with a comprehensive view of the financial resources available to the household.
Report income accurately and truthfully, as lenders may verify this information. Verification can occur during the initial application or after an account is opened. Lenders may request pay stubs, W-2 forms, tax returns, or other financial documents.
Some card issuers may also use income modeling algorithms to estimate an applicant’s earnings based on credit report data. Providing false information on a credit card application is considered fraud and can lead to severe consequences, such as account closure or legal repercussions. Report income honestly, ensuring it can be supported by documentation if requested.