Does your credit card issuer know how much you earn?

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Through Gerri Detweiler / Credit.com

It was embarrassing to say the least: I was at the cash register when the clerk asked me how much money I was making. Normally this is not a question I would answer for a complete stranger, but I would ask for a department store card and she had to enter a number. I told him, and a few minutes later I had the card, which made me wonder, are they checking this information?

Following the CARD law of 2009, issuers are required to assess an applicant’s ability to repay debt. Yet income data is not part of the norm credit reports, so how do they do that? Issuers can approach it in a number of ways, says Brannan Johnston, vice president of consumer information services at Experian.

Declared income

Most issuers rely on the income applicants report on their credit card applications. But that doesn’t mean you can invent anything you want. First, you don’t want to raise the alarm by stating income that you don’t receive. “It must be reasonable,” says James K. Simon, Jr., senior vice president and chief loan officer of TCM Bank, NA, and must make sense in the context of the company’s employment and financial condition. borrower. Fortunately, issuers usually allow you to count a wide range of income sources, including your spouse’s income if available to pay off your debt, as well as income from investments, pensions, social security benefits, etc.

The other reason you don’t want to pull a number out of nothing: it’s illegal to provide false information on a credit application. Although rare, there are situations in which consumers have been sued for lying on credit card applications. So don’t put a six-figure salary if you don’t earn one.

Income models

These models estimate monthly income based on various factors including credit report data. “If you have a mortgage with a certain monthly payment and an auto loan with a certain monthly payment and you make them on time, it’s reasonable to assume that you have XX income,” says Johnston. In other words, the model can deduct the amount you are likely to earn based on the payments you make each month to pay off your debt. Lenders can buy them from credit reporting agencies such as Experian, the same way they buy them. credit scores.

Income verification

When a complete income verification is required, lenders can ask applicants to authorize the lender to obtain their tax return data directly from the IRS. Again, the lender can use a service such as that offered by Experian to process this request. “Full checks tend to be expensive,” says Johnston, “so it would make financial sense to do this only for very large lines of credit.” Apply for a mortgage is an example of a situation where the lender may request tax return data.

Of course, lenders can always ask for proof of income, like pay stubs, from the borrower, but again, this is more likely to happen with a car loan or mortgage. It is time consuming and expensive to ask employees to verify this information, and even pay stubs can be tampered with quite easily.

At least as it is, most card issuers rely on the number you provide in the “income” field when you apply for a credit card. What they do check, however, is your credit score. (This is a good reason to check your credit scores, which you can do for free.) They know that all the income in the world won’t matter if you don’t pay your bills. So they want to see a good credit rating, which demonstrates an experience of paying bills on time. And that’s something you can’t fake.

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