What Annual Income Is Required for a Credit Card?
Your debt-to-income ratio, or DTI, can assist creditors figure out if you make enough money to qualify for a loan.
If you’re thinking about getting a new credit card, you might be wondering, “How much money do I need to qualify for a credit card?”
It’s a crucial question since corporations are obligated by law to verify that you have enough income to qualify for a line of credit. The minimum income for a credit card, on the other hand, isn’t a concrete amount and is determined by a variety of circumstances. We’ll look at credit card income requirements and how to properly disclose your income in the sections below.
Why is income taken into account when applying for a credit card?
The eligibility conditions for various credit cards vary. Your income, on the other hand, is always a big factor in getting authorized. So, how much money do you need to get a credit card?
“Credit card issuers rarely post a minimum annual income criteria for their credit cards,” says Jason Vissers, credit card analyst at MerchantMaverick.com. “But that doesn’t mean they aren’t considering your income when analyzing your application.” [Income Is Required for a Credit Card]
The CARD Act, also known as the Credit Card Accountability Responsibility and Disclosure Act of 2009, incorporates various safeguards to protect consumers against exploitative tactics. One of these restrictions is that you have to make a certain amount of money to receive a credit card.
Despite the fact that the CARD Act does not specify a minimum income criteria, credit card firms must verify that applicants have enough income to make monthly payments before they may be authorized. A pay stub or W-2 may be requested by the creditor in order to verify your gross and net income and decide whether you can afford to take on more debt.
Creditors may also consider additional variables in the approval process, such as your credit score, work history, and housing situation. Keep in mind, however, that getting authorized by a major credit card issuer isn’t always a simple formula, according to Jeanne Kelly, credit expert, author, speaker, and owner of credit coaching firm The Kelly Group Credit Coaching Inc. [Income Is Required for a Credit Card]
You could, for example, have a strong credit score yet only have one loan or credit card. “You can get turned down because you don’t have enough credit,” Kelly warns.
Even if you have a good salary, if you have a lot of debt, you may not be authorized for a credit card.
What is the Minimum Income Requirement for a Credit Card?
“A credit card provider may view two people with the same income differently if one of the two applicants has more debt to repay,” Vissers explains. “It’s due to something called your debt-to-income ratio, or DTI,” says the expert.
Your DTI, which is presented as a percentage, indicates how much of your gross monthly income is used to pay off debt. Let’s imagine you make $6,000 each month before taxes are deducted. You have a $800 monthly student loan payment and a $400 monthly automobile payment. That means you have a total debt obligation of $1,200 every month. The DTI formula might look like this:
DTI = Debt ($1,200) / Income ($6,000) = approximately 20%
Although there is no particular threshold for credit card acceptance, a DTI of 43 percent is usually the greatest that lenders will allow in order to qualify for a mortgage. Even so, it’s a good idea to keep your DTI as low as possible, with a DTI of less than 36 percent being the standard. “The more debt you have, the greater your annual salary will need to be to qualify for a credit card,” explains Vissers. [Income Is Required for a Credit Card]
As you can see, when applying for a credit card, it’s not just your income that matters, but also how much of that money goes toward debt repayment. Even if two persons earn the same amount of money, one may be authorized for a card while the other is not based on their DTIs. As a result, the minimum income for a credit card is whatever you need to earn to keep your DTI under control.
On a credit card application, how do you report your income?
In addition to the money from your usual 9-to-5 job, you can disclose many forms of income on your credit card application. In fact, in 2013, the Consumer Financial Protection Bureau changed CARD Act regulations to allow applicants 21 and older to disclose third-party income, such as that of a partner or spouse, as long as they have “a reasonable expectation of access to it.” The following items are included under that broad definition:
- Personal income.
- Scholarships and grants.
- Allowances and gifts.
- Trust fund distributions.
- Retirement fund distributions.
- Social Security benefits.
Remember that by including these numerous sources of income on your application, you’re indicating that you may use this money to repay your debt. Don’t mention any money that you don’t have complete access to or that you don’t intend to tap if necessary. [Income Is Required for a Credit Card]
Student Credit Card Income Requirements
The income requirements for credit card applicants aged 18 to 20 are slightly different. They can’t include most third-party income, such as that from a partner, and must rely solely on personal income, scholarships, and grants.
For example, regardless of your age, you are unable to count loan disbursements. Because you must repay a loan, such as a school loan or a personal loan, the money you receive is technically not income. Even if you use your loan money to pay for living needs, it is not considered income in the eyes of creditors. [Income Is Required for a Credit Card]
In most situations, your parents’ salary are also not allowed to be counted as income. Unlike with spouses or partners, when it is reasonable to expect that you will have access to their money, it is presumed that you will not have access to your parents’ income. If you get an allowance or regular contributions from a parent into an individual or shared bank account, this is an exemption.
So what if you’re a student without a source of income? You’ll need a co-signer who is over the age of 21 to apply. If you don’t pay your credit card amount, the co-signer is legally accountable, so if you skip payments, both of your credit scores will suffer. If you decide to take this way, be sure your co-signer is fine with the risk. [Income Is Required for a Credit Card]
What Happens If You Don’t Report Your Earnings Correctly?
When it comes to disclosing your income on a credit card application, perfection isn’t necessary. Don’t sweat it if you don’t get it down to the last dollar. It’s supposed to be an estimate, even if it’s considered to be rather accurate.
It may be tempting to manipulate the numbers to make it appear as if you earn more money in order to get authorized for the card, but this is not a good idea. If you lie on an application, you could be prosecuted with credit card fraud, which can result in fines of $1 million and/or 30 years in prison. [Income Is Required for a Credit Card]
Above all, keep in mind that the income criteria are in place to safeguard you. “If you have to lie to get a credit card, you’re going to have a hard time making payments at your existing salary and debt levels,” Vissers says.
If you are unable to obtain approval, consider applying for a new card, as each financial institution has its unique credit approval process; just because you have been denied for one card does not mean you will be denied for all. However, keep in mind that every application you make will trigger a hard credit query on your credit reports. One or two queries should have no effect on your credit score, but multiple inquiries within two years can lower your score. [Income Is Required for a Credit Card]
“You can always prequalify for a card,” Kelly suggests as an alternative. This is when a creditor performs a soft pull on your credit, which has no impact on your credit score, to check if you match particular approval criteria. It’s not a guarantee that you’ll obtain the card, and you’ll still have to fill out a formal application, which will result in a rigorous credit inquiry. However, it’s an excellent method to see whether you have any possibilities based on your credit and income. [Income Is Required for a Credit Card]
You might also want to consider getting a secured credit card. “These cards demand a security deposit that establishes the amount of your credit limit,” adds Vissers. Once your income is more considerable, you can switch to a regular credit card.
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