Do Student Loans Count as Income for Credit Card Applications?
Learn how credit card issuers view student loans. Understand their true impact on your application and explore ways to qualify for a card.
When applying for a credit card, a common question is whether student loan funds count as income. Understanding this distinction is important because loans represent a debt obligation, fundamentally different from earnings. This difference affects how credit card issuers assess an applicant’s ability to manage new credit.
What Credit Card Issuers Consider Income
Credit card issuers evaluate an applicant’s income to determine their capacity to repay borrowed funds. This assessment helps them set appropriate credit limits and manage their own risk. Income generally includes any regular and verifiable money you have reasonable access to for paying bills. This encompasses a wide range of sources beyond a traditional salary.
Accepted forms of income include wages from full-time, part-time, or seasonal jobs, as well as earnings from self-employment, tips, and commissions. Investment income, such as dividends and interest, along with distributions from retirement accounts and pension benefits, also qualify. Furthermore, certain forms of public assistance, Social Security benefits, disability payments, alimony, and child support can be reported. For individuals aged 21 or older, income from a spouse, partner, or other household member that is regularly accessible for bill payments may also be included.
When reporting income, applicants typically provide their gross annual income, which is the total amount earned before taxes and other deductions. Some issuers may ask for net income, which is the amount received after deductions.
Why Student Loans Are Not Income for Credit Card Applications
Student loans are fundamentally different from the types of income credit card issuers consider. These funds are borrowed money that must be repaid, making them a liability rather than a source of earnings. While loan disbursements provide funds for educational and living expenses, they do not represent an increase in an individual’s net worth or an ability to generate revenue.
Credit card companies are concerned with an applicant’s ability to meet financial obligations. Income signifies the capacity to earn and pay down debt, while a loan simply shifts the origin of funds, creating new debt. Reporting student loan disbursements as income would misrepresent an applicant’s financial standing, as it conflates a temporary influx of borrowed capital with sustainable earning power. Loans are therefore explicitly excluded from what counts as income on a credit card application.
How Student Loans Impact Credit Card Applications (Beyond Income)
Even though student loans are not considered income, they still influence credit card applications through other financial metrics. Lenders consider the debt-to-income (DTI) ratio, which compares total monthly debt payments to gross monthly income. Student loan payments contribute to monthly debt obligations, affecting your DTI ratio.
A higher DTI ratio suggests that a larger portion of your income is committed to debt repayment. Lenders may view a high DTI ratio as increased financial risk, potentially reducing the new credit you qualify for or leading to less favorable terms. Additionally, the payment history of your student loans is reflected on your credit report, impacting your credit score. Consistent, on-time payments positively affect your credit score, while missed or late payments negatively influence credit card approval.
Alternative Ways to Qualify for a Credit Card
Individuals with limited traditional income or those relying on student loans for living expenses have several options to qualify for a credit card.
A secured credit card is a common starting point for building or rebuilding credit. You provide a refundable cash deposit, typically ranging from $200 to $5,000, which often serves as your credit limit. This deposit reduces issuer risk, making approval easier. Responsible use and on-time payments can establish a positive credit history, potentially leading to an unsecured card.
Becoming an authorized user on another person’s credit card account is another strategy. An authorized user receives a card linked to the primary cardholder’s account and can make purchases, but the primary cardholder is responsible for all payments. This arrangement can help build credit history as account activity is reported to credit bureaus for the authorized user. However, the authorized user’s credit can be negatively affected if the primary cardholder manages the account poorly.
Some issuers may allow a co-signer on an application, especially for applicants under 21. A co-signer agrees to be legally responsible for the debt if the primary applicant cannot pay, providing added security for the lender. Many major credit card issuers do not offer co-signed cards, limiting this option. Demonstrating other legitimate income sources, such as earnings from a part-time job, stipends, or grants that do not require repayment, can also improve approval odds.