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Your income can impact your ability to qualify for a new credit card or loan and the offers you receive. But it's not always clear what exactly a creditor will consider as part of your income. In part, this is because the rules can depend on the creditor and type of loan. However, there are general guidelines you can follow when calculating your income.
Why Your Income Matters
Creditors consider various information before deciding to approve your application and the terms you'll be offered, such as the credit limit or loan amount and interest rate. Your history with the company, credit scores, credit reports, income and outstanding debts can all be factors. Some of the information a creditor considers comes from your credit report or their internal records.
Your income isn't part of your credit report, however, so you'll report it yourself on the application—which is why you need to know which types of income to include. You may also be asked to submit verification documents, such as pay stubs or tax returns. And creditors can use computer models to estimate some applicants' income.
Types of Income You Can Often Use
You can generally use the following sources of income on an application. To get your total annual gross income, add up the amounts you receive before taking out taxes and benefits:
- Employment: Hourly wages and salaries you receive as a full-time or part-time employee, including your bonuses, tips and commissions.
- Self-employment: Money you earn as a contractor, gig worker or business owner.
- Investments: Interest, dividends, coupon payments and other types of investment income.
- Retirement: Such as Social Security, pensions, annuities and withdrawals from retirement accounts.
- Public assistance: May include Social Security disability income and housing vouchers (when applying for a mortgage).
- Insurance payments: For policies that provide ongoing coverage, such as long-term disability and workers' compensation.
- Other people's income: Sometimes, you can include a spouse's, partner's or household member's income or assets if you have reasonable access to the funds. For instance, if your spouse's income is deposited into a joint account.
- Alimony, child support and separate maintenance: You can, but don't need to, count these as income.
- Some financial aid: The portion of scholarships, grants, work-study wages and sometimes student loans that you receive directly.
- Regular allowance: Money that you receive on a regular basis from someone else, such as an allowance from a parent while you're at school.
- Other income: Less common types of income may also count, such as royalty payments, trust payouts and foster-care income.
If You're Under 21 Years Old
The CARD Act distinguishes between credit card applicants who are under 21 years old. If you're 18 to 20, you can only use your independent income or assets when applying for a credit card. An allowance can count, but you can't include a relative or friend's income, even if they will help you pay the bill.
Types of Income and Benefits You Often Can't Use
Creditors generally only want you to list regular and ongoing sources of income that you can use to repay the debt. As a result, the following might not count:
- Unemployment benefits: Unemployment Insurance benefits can typically only be collected for a limited time. There may be exceptions for seasonal workers who regularly collect unemployment, however.
- Non-cash assistance: Such as vouchers or subsidies for utilities and child care.
- Lottery winnings and gifts: When they're one-time events.
- Some financial aid: Funds that go directly to your school to pay educational expenses aren't part of your income.
- Loans: Most loans aren't considered income because you need to repay the money.
Creditors may have some say over which types of income they'll consider. If you have any questions, you could call and ask the creditor before you submit an application.
Do All Creditors Consider Your Income and Debt?
Most creditors want to be sure—and many are required by law to verify—that you can afford to make your debt payments. Your income is part of the equation, along with your other outstanding monthly financial obligations.
Creditors may use this information to calculate:
- Debt-to-income ratio (DTI): Your DTI compares your gross monthly income and all your monthly debt payments. Different types of lenders will review your current DTI and how the new account would affect it. There may be a maximum allowed DTI—such as 43% for qualified mortgages.
- Payment-to-income (PTI) ratio: Auto lenders may consider your DTI and PTI ratios. The PTI ratio shows how much of your monthly income goes toward your car payment and estimated insurance premium. Lenders may set a 15% to 20% maximum PTI.
A higher income and lower payments lead to lower ratios—which is best when you're applying for credit.
Prepare for Your Next Application
Increasing your income can help you get better loan offers, but it isn't easy. Here are some other things you can try as you're getting ready to apply:
- Pay off debts. Paying off a debt can lower your DTI, but you'll need to pay it off completely. A debt consolidation loan could be a good option if you can qualify for a lower interest rate, and your monthly payment is lower than the total of your previous payments. Using a loan to consolidate credit card debt may also help improve your credit scores by lowering your utilization rate.
- Review your credit reports. Look over your credit reports for the factors that may be hurting your credit. You can get your credit reports from all three credit bureaus through AnnualCreditReport.com. You can also check your Experian credit report online for free. If you find something you believe to be amiss, you can also quickly file a dispute online.
- Check your credit score. Experian gives you a free FICO® Score☉ based on your Experian credit report. Track it over time and get suggestions on how to improve your score.
- Ask someone to cosign. A creditworthy cosigner or co-borrower may help if you can't qualify for credit on your own, or if you're not happy with the terms you're offered.
You can also try to get preapproved or prequalified for a loan or credit card with a soft inquiry—which won't impact your credit scores. Experian CreditMatchTM can help you find and compare offers from partner credit card and personal loan companies. Some lenders or loan brokers can also work with you directly to preapprove or prequalify you for a new account.