One of the biggest mistakes that people make when applying for credit cards is that they don’t consider what their accessible income is. Accessible income can open up many more opportunities for some of the best credit cards and for higher credit limits that can help to improve your credit score and allow you more spending flexibility. In this article, I will tell you everything you need to know about accessible income, including how it relates to using your parents’ or spouse’s income.
What does accessible income mean on a credit card application?
Accessible income on a credit card application typically means the total annual income that is reasonably accessible to you if you are 21 years or older. I’ll go into detail about what “reasonably accessible” means below.
This is very different from “assessable income” which relates to your income for tax purposes (note the spelling difference). Assessable income is basically all of the income that you pull in that could be taxed before you factor in things like tax deductions and credits. So it is usually higher than your taxable income.
So just don’t get assessable income (which relates to taxes) mixed up with accessible income (which relates to credit card applications).
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The CARD Act of 2009
The Credit Card Accountability Responsibility and Disclosure (CARD) Act, which came out in 2009 under the Obama administration, is what sets the standard for accessible income. This Act did a lot of things to protect consumers from predatory tactics banks were engaging in (like hidden fees) but it wasn’t until an amendment came in 2013 that it changed things regarding what you can use for your stated income on a credit card application.
The final rule amended Regulation Z to remove the requirement that issuers consider the consumer’s independent ability to pay for applicants who are 21 or older, and permitted issuers to “consider income and assets to which such consumers have a reasonable expectation of access.”
So with the rule it’s all about what is considered a “reasonable expectation of access.” This can mean different things but here are some instances where you have a reasonable expectation of access.
You have a reasonable expectation of access when the non-applicant:
- Deposits the income into a joint account shared with the applicant;
- Deposits the income into an account to which the applicant does not have access but regularly transfers a portion of the income to the applicant’s individual deposit account; or
- Regularly uses a portion of the income to pay for the applicant’s expenses.
This means that in some cases you can include at least some of your parents’ income on your credit card application if you are 21 years or older, making it much easier for many college students to get credit cards. In addition, you can include your spouse’s income on your credit card application as well. It all really comes down to if you:
- Have direct access to an account where that money goes
- Get regular transfers into your own account
- If the non-applicant uses at least a portion of their income to pay for your expenses
If any of those are true then you can use that income on your credit card application. I’m still not 100% clear on when you can use the entire income or just a portion. It seems that if the additional income is deposited into an account you have direct access to (a joint account) or if they regularly pay your expenses, you could include all of their salary as your reported income. But if you are only transferred portions of their salary into an account you may be limited to only including that portion.
This is based on the language found in the proposed comments:
Proposed comment 51(a)(1)-6.i noted that if a household member’s salary is deposited into a joint account shared with the applicant, an issuer is permitted to consider that salary as the applicant’s income for purposes of § 1026.51(a).
Proposed comment 51(a)(1)-6.ii assumed that the household member regularly transfers a portion of his or her salary, which in the first instance is directly deposited into an account to which the applicant does not have access, from that account into a second account to which the applicant does have access. The applicant then uses the account to which he or she has access for the payment of household or other expenses. An issuer is permitted to consider the portion of the salary deposited into the account to which the applicant has access as the applicant’s income for purposes of § 1026.51(a).
The third example in proposed comment 51(a)(1)-6.iii assumed that no portion of the household member’s salary is deposited into an account to which the applicant has access. However, the household member regularly uses that salary to pay for the applicant’s expenses. The example clarified that an issuer is permitted to consider the household member’s salary as the applicant’s income for purposes of § 1026.51(a) because the applicant has a reasonable expectation of access to that salary.
The credit applications should not ask you to distinguish between the different types of sources, either. So you won’t have to say “I receive X amount of money from my parents, X amount from my spouse, etc.”
Note that other forms of income can be counted such as: scholarships, grants, social security payments, retirement distributions, trust funds, financial gifts, etc.
Does income really matter for credit card applications?
You might be wondering if income really matters for credit card applications. After all, aren’t credit card approvals based mostly on your credit score?
Generally, your credit score and credit history are going to be the two most important factors for getting approved for credit cards. But some cards, especially premium cards like the Chase Sapphire Reserve or Amex Platinum Card, can disqualify you if you have a very low income. Thus, if your income is on the lower side, you want to be sure to take advantage of accessible income.
I’ve also found some banks to be more forgiving regarding income if you have an established credit history or have a higher credit score. For example, if you had a 760 credit score (which is basically a perfect credit score), 10 years of credit history (AAOA), and then income on the lower side, you still might be able to get approved because of your other strong factors.
The biggest thing that income will likely affect is your starting credit line. With a low income, you’ll probably struggle to receive a high credit limit. However, over time you might be able to get that credit limit even higher by paying your bill off on-time each month (keep reading below for more on credit line increases).
Do banks verify income?
Most credit card applications will not require you to verify your income. This can make it very tempting to state a higher income than you really have access to but that’s not a good idea for a couple reasons.
First, there are some banks out there that have requested tax forms along with the credit card application, so sometimes you will need to verify or explain your stated income via documents. And it’s not going to help your approval odds if they find out you’ve exaggerated your income.
The second reason is that your account could come under review one day. If that happens, the bank might look to see what type of income you’re reported on your application and then request for you to verify that income down the line. If they see you did not tell the truth or were not accurate, they could lower your credit limits or even decide to shut down your accounts.
The final reason you don’t want to exaggerate your income is that you may be asking for more credit than you can handle. Let’s say you increased your income by 3X its amount and instead of the $1,500 credit limit you deserved you were given a $10,000 credit limit. If you’re a financial newbie and don’t have experience with managing that much credit you could end up hurting your credit score by doing things like maxing out cards. So just think things all the way through when reporting your income.
Credit limit increases
Once you are approved for a credit card, you often want to seek out a higher credit limit for that card. Luckily, the CARD Act also applies to credit limit increase applications. Read more about credit line increases below:
- Citi Credit Limit Increase
- Chase Credit Line Increase
- Amex Credit Limit Increase
- Bank of America Credit Line Increase
Does income affect your credit score?
Income does not affect your credit score directly but there are some indirect effects. For example, if you have a higher income it will usually be easier for you to pay off your bills and keep your utilization lower. Since men on average make more than women, this is one reason they have higher credit scores (even though women on average have less debt).
However, there is no direct way for your credit score to benefit from the CARD Act by including other income, except for being able to get approved for other cards and improving your score that way.
The amendment to the CARD Act has made it much easier to get approved for cards for people with lower incomes but who have access to other income.
Daniel Gillaspia is the Founder of UponArriving.com and creator of the credit card app, WalletFlo. He is a former attorney turned full-time credit card rewards/travel expert and has earned and redeemed millions of miles to travel the globe. Since 2014, his content has been featured in major publications such as National Geographic, Smithsonian Magazine, Forbes, CNBC, US News, and Business Insider. Find his full bio here.