Stating your income on credit card applications is a piece of cake when you earn an annual salary.
But what if you’re a student working part time, a self-employed business owner, or a stay-at-home parent? Reporting your income may be a bit more complicated if you have a fluctuating income. Even so, if the income you put down is inaccurate, you could run into issues down the road.
Read on to learn what you can count as income on credit card applications and how to calculate it correctly.
What counts as income on credit card applications?
According to the Credit CARD Act of 2009, credit card issuers can approve applications only after “the card issuer considers the ability of the consumer to make the required payments under the terms of such account.”
In other words, credit card companies now have minimum income requirements for consumers looking to get a credit card.
“Credit card issuers generally rely on income information provided by the applicant as a key component in determining the applicant’s ability to pay,” said Jim Panzarino, executive vice president and president of credit and card operations at Discover.
But the CARD Act doesn’t spell out exactly what applicants can include as income. So, in 2013, the Consumer Financial Protection Bureau (CFPB) amended the act to offer more detail.
Specifically, applicants who are 21 and older can claim any income to which they have reasonable access. The amendment also explicitly states that stay-at-home spouses or partners can count a working spouse’s income on an application.
But the “reasonable access” definition may also extend to the following:
- Personal income
- Allowances and gifts
- Scholarships and grants
- Trust fund distributions
- Retirement income
- Social Security income
The amendment doesn’t provide any changes for applicants under 21. If you’re in this camp, you can report only independent income, which may include:
- Personal income
- Scholarships and grants
If you’re wondering whether something counts as income, ask yourself the following question: Can I provide documentation if the credit card issuer requests it? For example, you can use tax returns, bank statements, pay stubs, and school records as proof of income.
What can’t I count as income on my credit card application?
“Loan disbursements are not to be considered as income,” said Panzarino. That includes student loans.
This distinction can be confusing to some students. After all, they can use student loans to pay for living expenses, essentially treating them like income. But for credit purposes, it’s a no-no to count them as such.
That’s because, like the credit card you’re applying for, a loan is a debt you must repay. On the other hand, you do not repay income after you receive it.
You also can’t count income to which you don’t have reasonable access. For example, students can’t count their parents’ income because it’s not reasonable to assume students have access to their parents’ full salaries.
How to calculate your annual income for credit card application purposes
If you have a set annual salary, calculating your income is simple. Things can get more complicated, though, if your income is irregular or you’re paid hourly.
If you’re an hourly-wage employee, use last year’s W-2 tax form to report your income. But if you didn’t work the full year or you’ve received a raise recently, use the following calculation:
Hourly wage x Average hours per week x 52 weeks = Annual income
For example, say you earn $15 per hour and work 35 hours per week on average. Your calculation would look like this:
$15 per hour x 35 hours x 52 weeks = $27,300 per year
However, if you’re self-employed or a seasonal worker and have irregular income, calculating your annual income can be more difficult.
For self-employed applicants, a good rule of thumb is to take the average of your income from the last two years. If you haven’t been self-employed for at least two years, you’ll need to estimate your annual income.
The same goes for seasonal employees. With no guaranteed amount, estimating is your best bet. There aren’t any legal guidelines when it comes to estimating your income, so you’ll want to estimate as accurately as possible.
Don’t lie about your income on your credit card application
If you’re having a hard time estimating or calculating your income, it may seem simpler to throw out a number. You may also consider inflating your income to get a higher credit limit. Doing so deliberately, however, can be credit fraud.
“Some [credit card issuers] may request that the applicant confirm or verify the income stated in an application,” said Panzarino. And if the credit card issuer finds out you deliberately inflated your income, it could file credit fraud charges.
For example, in one New York case, a man was sentenced to time served and five years’ supervised release and received a hefty fine for providing inflated income information on credit card applications.
Reporting correct income gets you credit you can handle
Stating your income properly isn’t just important to avoid credit fraud. It’s also essential to make sure you get the maximum credit limit for which you qualify. In other words, if you underestimate your income, you may get stuck with less spending power.
Before you submit a credit card application, be sure to do the math to get your income right. Then, keep that number in mind for the next time you apply.
And if you have allowable, non-independent income to report on your credit card application, make sure you can verify it before adding it in.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|