Purchasing a credit card opens up many possibilities such as: B. Building credit, instant access to funds, great bonuses, and more.
The only thing standing between you and these opportunities is the credit card application, which usually asks for your contact information and annual income. This income factor can cause a lot of anxiety if you are a college student, a stay-at-home spouse, unemployed, or earning little or no income.
But don't let the income itself stop you from applying for a credit card. What counts as income and how much you need to qualify for a credit card can surprise you. Here's what you need to know about credit card income requirements.
Income Requirements for Card Application The Credit Card Accountability and Disclosure Act of 2009 (CARD Act [PDF]) introduced annual income questions to protect consumers after the Great Recession.
The law states: "A card issuer may not open a credit card account for a consumer or increase any credit limit applicable to that account under an open consumer credit program unless the card issuer reasonably determines that the consumer's ability to pay is in accordance with the terms of such account."
Under the CARD Act, card issuers must ensure that cardholders can afford to pay off their balances, or at least maintain a minimum payment, which is calculated monthly based on the card's outstanding balance. So your earnings help the issuer determine your credit limit and whether you can pay.
However, the CARD Act does not specify a minimum income requirement, which means that this decision is at the discretion of the card issuer.
Credit Card Income Requirements The tricky part for applicants is that card issuers usually don't publish minimum income requirements, because income by itself doesn't quite measure an applicant's financial well-being.
It's just one factor in a more comprehensive measure of a cardholder's ability to make minimum payments, known as the debt-to-income ratio (DTI). Your debt-to-income ratio shows how much you owe and how much you earn. If you're doing well but have a lot of debt, you could be denied a credit card.
So what is excessive debt? While credit card issuers set their own DTI ratio requirements, the Consumer Financial Protection Bureau (CFPB) recommends a maximum DTI ratio of 43% [PDF] to qualify for a mortgage. However, the CFPB recommends that homeowners keep their DTI ratios at 36% or less [PDF] and tenants keep their DTI ratios at 15% to 20% or less.
Therefore, these numbers are often considered when it comes to credit cards. You can calculate your DTI ratio by dividing your total monthly debt (car payments, child support, mortgage payments, child support, student loans, etc.) by your monthly income.
Let's say you owe $1,200 a month on your car loan and $400 on your student loan, bringing your total monthly debt to $1,600. If your monthly income is $2,500, your DTI ratio is 64%, which is probably too high to apply for a credit card. However, if the income is about $3,700 and the debt level is the same, the DTI rate is 43% and the credit card qualification is more likely.
Also note that some credit cards have minimum credit limit requirements. So, if your income prevents you from getting a higher credit limit, your credit card application may be declined.
If you have no credit history or poor credit and are unsure about making the minimum monthly payment, you can apply for a secured credit card that requires you to pay a security deposit as your line of credit.
Student Credit Card Income Requirements Student credit cards are a great tool for building credit (as long as you pay on time). Lenders have different requirements for proof of income for students, largely depending on age.
Generally, if you are between the ages of 18 and 20, you must have proof of independent income or a guarantor (usually a parent or guardian) who can guarantee the payment. In addition to income from work, you can also calculate regular stipends or money left over from grants and scholarships after paying your tuition fees.
If you are a student age 21 or older, you may not be issued a credit card with a co-signer. Instead, you can enter income from part-time or full-time employment (to count tips), self-employment, recurring benefits or allowances, income from a spouse, and remaining funds from grants and grants.
Issuer-Specific Policies
The CARD Act does not set any income requirements, which means that these requirements are at the discretion of card issuers. Some issuers have specific minimum incomes, debt-to-income ratio limits, and minimum credit limits, all of which can affect your ability to get a credit card.
For example, under the terms and conditions of the Capital One SavorOne Cash Rewards credit card, Capital One requires applicants' monthly income to at least exceed monthly mortgage or rent payments of $425 to be eligible for the card.
However, the Wells Fargo Autograph℠ Card offers a $1,000 minimum credit limit per the card's terms and conditions. So if your income is too low to qualify for a $1,000 monthly credit limit, you will most likely be rejected for this type of card.
Misrepresenting income on credit card applications
You should never lie about your income when applying for a credit card. If you get approved for a card you can't pay off, you'll get into debt and damage your credit score, which could prevent you from renting, getting a mortgage, opening another credit card, being approved as credit, and more. Additionally, lying on a credit card application can result in up to 30 years in prison and a fine of up to $1 million.
Credit Card Application Acceptable Sources of Income
Income from a full-time job isn't the only income that matters in a credit card application. In general, you can include the following in your annual net income:
Full-time, part-time or freelance earnings, wages and tips
Spouse Income (Household Income)
Unemployment benefits (occasionally acceptable)
Child support, alimony, or separate alimony
grants and grants
social security income
retirement savings and pension payments
savings balance
gift (occasionally acceptable)
allowance
Trust Fund or Estate Distribution
return on investment
It is important to note that certain sources of income are not accepted for credit card applications. The following do not count towards your annual net income:
loan
your parents' income
Benefits in kind (such as utilities)
certain types of financial aid
unique gift
final result
While the CARD Act requires cardholders to be able to afford credit card payments, card issuers can set their own income requirements, but they typically don't make them public. Credit card issuers look at your income holistically based on your debt-to-income ratio to determine whether you can afford to make the minimum monthly payments and therefore whether they should approve your application. If you have no income, low income, are receiving government grants, or are a student, there are many sources of income you can include in your credit card application in your annual net income that go beyond traditional wages.