What Counts as Income for a Credit Card Application?

When applying for a credit card, the income you report is a significant factor. Lenders assess this information to determine your ability to repay any borrowed funds. This article clarifies the various forms of income that can be included on a credit card application.

General Principles of Income for Applications

Credit card issuers evaluate income based on several core principles. They look for income that is regular and reliable. This consistency helps lenders gauge your ongoing financial capacity to meet payment obligations.

Another principle is your ability to pay. The Credit CARD Act of 2009 mandates that lenders must consider a consumer’s ability to make required payments before extending credit or increasing credit limits. This regulatory requirement ensures that credit is extended responsibly, aligning with your financial standing. Income must also be verifiable, meaning you should be able to provide proof if requested.

Specific Sources of Countable Income

Many sources of income are accepted when applying for a credit card. Wages and salaries from employment are common examples, including bonuses, tips, and commissions. Income from self-employment, such as freelancing, consulting, or business ownership, also counts.

Social Security benefits, whether for retirement or disability, are considered income. Retirement income from pensions or distributions from accounts like 401(k)s and IRAs can also be included. Investment income, such as dividends, interest, or rental income from properties, is counted.

Unemployment benefits may sometimes be included, though their temporary nature can be a factor. Public assistance programs, like welfare or food stamps, can be reported if received regularly and are verifiable. For applicants aged 21 and older, shared household income from a spouse or partner can be included if there is a reasonable expectation of access to those funds for bill payment, a provision stemming from the CARD Act. Alimony or child support payments can also be reported if regularly received and the applicant chooses to disclose them.

What Not to Include as Income

Certain types of funds or resources are generally not considered income for credit card applications. Loans, such as student loans, personal loans, or mortgages, are examples of what not to include because they represent debt that must be repaid, not income. One-time or irregular gifts from family or friends are also typically excluded as they lack the necessary regularity.

Scholarships or grants generally do not count, unless they are explicitly designated for living expenses and are received on a regular basis. Inheritances are usually not considered income unless they are structured as consistent, reliable distributions over time. Proceeds from selling assets, like a car or a house, are also typically not included unless the sale is part of a regular business activity.

Reporting Income on Your Application

When reporting income on a credit card application, accuracy and honesty are important. Inflating your income is not advisable, as providing false information can lead to serious consequences, including account closure, forfeiture of rewards, or even legal issues. Credit card issuers may verify income through various methods, such as requesting pay stubs, tax returns, or bank statements, or by utilizing third-party databases.

For those with fluctuating income, such as self-employed individuals or those earning commissions, it is recommended to calculate an average income over a recent period, often based on the previous year’s tax returns. When reporting shared household income, applicants aged 21 and older must have a “reasonable expectation of access” to those funds to pay the credit card bill. This access could be demonstrated through joint bank accounts or regular financial contributions from the household member.

Applicants who do not have traditional employment income, such as retirees, students, or stay-at-home parents, can still qualify for credit cards by reporting other countable income sources. Accurately reflect all eligible and verifiable income that contributes to your ability to make payments. The application asks for gross annual income, which is your total income before taxes and deductions.