Why Do Credit Card Companies Verify Income?

In an era when privacy seems up for grabs, it’s no surprise that some people bristle at a credit card company’s demand to verify income.

In fact, Americans are notoriously reluctant to share salary information with anyone. Just 41% of baby boomers tell immediate family members how much they earn, according to a 2017 survey by the website The Cashlorette.

Younger people share this information more readily, with 63% of millennials alerting family members to how much they earn. Still, just 48% of millennials reveal income details to friends, let alone corporations.

However, before you reject a lender’s request for your financials, know that there are two good reasons why credit card companies want to peek at your paycheck.

Here’s why credit card companies verify income:

For starters, card companies are required by law — specifically, the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 — to have a clear picture of how much you earn.

The Card Act requires card issuers to consider your ability to pay. This includes knowing your debt-to-income ratio, and the amount of income you have available after paying debt obligations, says credit expert John Ulzheimer.

“You can’t calculate these metrics without the applicant’s income,” says Ulzheimer, who has worked for both FICO and the credit-reporting agency Equifax in the past.

In addition, income information is vital to a lender’s ability to decide how much you can borrow responsibly.

Using a credit card is essentially the same thing as taking out a loan. Credit card companies need to know you will pay them back for the credit they extend to you.

“The income you report will be used to determine if you’ll be approved, and with what kind of credit limit,” Ulzheimer says.

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How to report your income to credit card companies

When applying for a credit card, be ready to give up the goods about how much you earn.

“Report your income, or your household income if you’re a nonworking spouse,” Ulzheimer says. “You can be denied if you don’t report your income, so it’s always better to do so.”

When you verify income, include the wages you receive from your main job, as well as money earned from part-time work and freelance gigs.

Other sources of income might include:

Child support
Alimony
Investment income
Government benefits

Remember, it is to your advantage to report all your income. The higher your income, the greater your chances of being approved for a card.

A credit card company also is likely to offer a higher credit limit to those who have fatter incomes.

If you are uncomfortable revealing such information — or divulging other details, such as your Social Security number, mother’s maiden name, or whether you own a home or rent — you might be better off living without credit cards.

Whatever you decide, don’t try to pull a fast one on your lender by fudging your income numbers in hopes of boosting the chances of being approved for a card.

“Report your actual income, or you could be guilty of fraud,” Ulzheimer says.

Credit fraud can result in fines or even prison time. If you must inflate your income to land a credit card, forget about borrowing money of any kind until your finances are stable.