How to Report Self-Employment Income on a Credit Application

Why Income Matters on a Credit Application

Lenders use your income to help determine how much you can afford to repay in a loan or line of credit. Your income doesn't appear on your credit report, and it doesn't factor into your credit score. But, if your monthly debt payments take up too much of your monthly income (indicated by a high debt-to-income ratio), a lender may see your debts as unsustainable and either deny your application or offer a lower credit line.

You want to report your income accurately on a credit or loan application. Falsely inflating your income to improve your chances of getting a loan is fraud, punishable by fines or even jail time. If the lender verifies your income, lying (or even guessing) is counterproductive. On the other hand, you do want to report all of your qualifying income to improve your chances of getting approved for the loan or credit line you want.

How to Calculate Your Income for a Mortgage Application

Mortgage lenders prefer to see at least two years of self-employment to show stability and gauge income over time. To calculate your monthly income for a mortgage application, start with this simple formula:

1. Find your net profit before taking exemptions or paying taxes (from Schedule C of your tax return) for the two most recent years you filed taxes.
2. Add these two figures together.
3. Divide the total by 24.

Example: Your net profit was $110,000 in 2023 and $104,000 in 2024. You'll add the two numbers together ($110,000 + $104,000) to get $214,000. Divide that by 24 to get your average monthly income: $8,917.

Learn more: How to Get a Mortgage When You Are Self-Employed

How to Report Your Income on a Credit Card Application

Use the same basic calculation to estimate your income for a credit card application. Many credit card companies use stated income from your application without additional verification. But some use income estimation models to check your math.

Do your best to provide a good faith estimate of your income, and be prepared to show your work.

Getting an Income Update Request

You're online paying your credit card bill when a pop-up window asks you to provide your monthly income. Credit card companies may ask for income updates periodically to see if you qualify for a higher credit limit. Unless you can make a credible estimate off the top of your head, you may want to skip this exercise. There's no penalty if you decide not to respond to these pop-up requests.

If you want to be considered for a credit line increase, calculate your monthly income and contact your credit card company separately to request an increase (and avoid making a wild guess on the spot). Or keep your estimated monthly income handy for just these types of occasions.

Learn more: What Should My Credit Limit Be Based on My Income?

How to Report Self-Employment Income Without a 1099

Lenders may ask for tax returns and 1099 forms to help document your self-employment income. However, not all income is reported on 1099s. For example, if you have a retail or food service business with cash sales, you won't have a 1099 to record that revenue. Because the threshold for issuing 1099s for independent contract work is $600, you may not have received these forms from your smaller clients.

Credit card companies typically use stated income, so they probably wouldn't require a 1099. Mortgage lenders may have stricter requirements. Talk to your lender about alternatives. They may be able to verify your self-employment income using one or more of the following:

• Tax returns or tax transcripts: Showing self-employment income on your most recent tax returns may be more reliable proof of income than 1099s anyway, since your tax return shows your total revenue from all sources.
• Bank statements: Bank and financial account statements provide a record of deposit transactions and account balances.
• Invoices: A series of invoices can show what you billed and to whom.
• Contracts: Your contracts may detail income from past projects and ongoing relationships (such as retainer arrangements).
• Profit and loss statement: Statements showing your anticipated revenue and expenses for the year help your lender learn about your business financials.

Tip: If you don't have tax returns to back up your income on a mortgage application, you may want to consider a bank statement loan or no-doc mortgage. These can be difficult to find, may have more stringent credit and down payment requirements, and may cost you more. However, they typically do have fewer income verification requirements, if these are an issue.

What if Your Reported Income Seems Too Low?

Once you've calculated your income, what happens if it's alarmingly low? Many taxpayers maximize their deductible expenses to lower their tax bills. This strategy offers tax advantages, but it also minimizes your reportable income when you apply for a loan, since lenders often use your taxes to verify your income. If your monthly income turns out to be lower than you expected, consider these steps:

• Add other sources of income. On a credit card application, you may be able to include sources of income beyond self-employment. Although the Credit CARD Act of 2009 limits the types of income you can include on a credit application, if you have any of the following, you may be able to include them in your stated income:

  • Employment earnings
  • Investments
  • Retirement
  • Public assistance
  • Insurance payments
  • Your spouse's earnings
  • Alimony and child support
  • Some financial aid
• Limit your loan size. Calculate a debt-to-income ratio that your lender will approve and reverse engineer your loan. If necessary, you may decide to buy a less expensive home or increase your down payment to lower your loan amount.
• Look for a friendly lender. A lender that's comfortable working with self-employed borrowers may help you navigate the underwriting process. An experienced mortgage broker can help you find lenders and loan programs that work best for your situation.
• Focus on improving your finances. If your income isn't sufficient to land you a loan now, you may want to take a year or two to build your business and let your income grow. Restart your home search when you have a longer—and hopefully more robust—financial track record.

The Bottom Line

Although calculating self-employment income for a loan or credit card application is more complicated than checking your pay stub, there is a basic formula for figuring it out. While you're considering your eligibility for loans and credit cards, you may want to check your FICO^® Score^Θ and credit report for free from Experian. Good credit generally translates to better interest rates and loan terms, and can improve your chances of getting a loan or credit.