Annual Income for Credit Card Approval

What can we say about the annual income for credit card approval?

As a start, card issuers are legally bound to ask you about your earnings since they can only lend you money if they’re certain you’ll pay back the loan.

You can include a variety of incomes. A higher income can generally improve your odds of approval and will allow you to have higher credit limits.

Since income doesn’t appear on your credit reports, most credit card issuers do not check your earnings. 

Credit lines with low limits aren’t worth their time or money.

But this does not mean that wrong data should be provided. We strongly recommend you give only the correct information. When submitting the documents, describe your income as accurately as possible.

Before starting with this credit card application and the Annual Income for Credit Card Approval, let’s look at the annual income, how to calculate it, and put it in your Credit Card Application.

TABLE OF CONTENTS:

1. What Is Annual Net Income?
2. What Qualifies As Annual Income For Credit Card Approval?
3. Why Do Credit Card Applications Inquire About Your Income?
4. How Do Credit Card Companies Set Your Credit Limit?
5. What Happens If You Report The Wrong Income?
6. How Much Annual Income Do You Need to Be Approved for a Credit Card?

What Is Annual Net Income?

Some credit card issuers request your net income when applying for the first time for a credit line. In general, your net income is the sum of money you take home on your salary after tax, health insurance premiums, and retirement contributions.

It is crucial to remember that credit card companies sometimes phrase the income requirement differently. 

For example, if you are applying for a Bank of America credit card, they might request your “total annual income” instead.

Not all credit card companies will require your annual net income. Some might specifically ask for your gross income.

The distinction between your net and gross income is easy to understand. 

If your net annual income is the amount you take home in actual pay after deductions are taken out, your gross income is the amount you make before deductions and taxes.

If you’re applying for Chase Freedom Unlimited, for example, they’ll want what’s your “total gross annual income.”

The gross income might be simpler to calculate as it could be the annual income you signed up for when you took on your new job. If you’re paid an hourly salary, however, it is possible to calculate your gross earnings using the previous year’s tax return or by multiplying your weekly gross income by the number of weeks you work during one year.

What Qualifies As Annual Income For Credit Card Approval?

There are various standards in determining what is considered income based on whether you’re at the age of 21. 

If you’re 21 years old, you can count any income you have a “reasonable expectation to access.” This could include:

• Salary from your job
• Freelancing income or other forms of work that is independent
• Your spouse’s or partner’s earnings
• Social Security
• Distributions of retirement funds
• Distributions from trust funds
• Grants and scholarships (for students’ credit cards)

If you’re younger than 21, you can add any personal income such as allowances, scholarships, and grants.

Why Do Credit Card Applications Inquire About Your Income?

Credit card issuers request your income on the application as they want to be sure that you will be able to pay back your credit on the card. Although the approval criteria for credit cards are private information banks aren’t likely to divulge, they usually examine your income, your credit score, and other variables to determine your creditworthiness before deciding whether to approve you.

In the CARD Act of 2009, SEC. 150. CONSIDERATION OF ABILITY TO REPAY, you can read it more carefully:

‘‘A card issuer may not open any credit card account for any consumer under an open end consumer credit plan, or increase any credit limit applicable to such account, unless the card issuer considers the ability of the consumer to make the required payments under the terms of such account.’’

How Do Credit Card Companies Set Your Credit Limit?

Your income is a significant element in determining the amount of credit you’re eligible for. Credit card companies may take into consideration:

• Any debts you are monthly paying
• Your mortgage or rent
• Your credit score
• Your credit limit for other credit cards

Every credit card company uses its own formula to determine how it uses this data to decide the credit limit. This means it’s impossible to know the amount of credit you’ll receive from your card issuer. However, high-limit credit cards typically have greater limits than other cards.

Most card issuers want to keep your credit limit at 25 to 100% of your income. Some may start you off with a lower limit, and if you make payments promptly, you can inquire about raising the credit limit later.

What Happens If You Report the Wrong Income?

When you are required to report your income in a credit card application, it’s not required that you do it perfectly. It’s intended to serve as an estimate even if the estimate is supposed to be pretty accurate.

It’s tempting to lie about the figures and create the appearance that you earn more money to get approval for the card. However, this isn’t a good idea. If you’re caught lying about the application, you could be penalized for fraud with a credit card that carries maximum penalties that can exceed $1 million in fines or thirty years of prison.

The most important thing is to be aware that the income requirements exist to protect you. 

If you cannot get approval, you should focus on a different credit card because all banks have their own credit approval procedures. If you’re rejected for one credit card does not mean you’ll get denied for all. 

It is also possible to consider opening the possibility of a secured credit card. These cards require a security deposit that establishes the amount of your credit line, so the requirements are relatively relaxed. 

It is possible to upgrade to a conventional credit card once your earnings are greater.

How Much Annual Income Do You Need to Be Approved for a Credit Card?

A crucial factor you can calculate is your “debt-to-income” ratio, also known as the DTI.

The DTI is expressed as a percentage and reveals how much of your monthly income goes towards your debt repayment.

For example:

• Imagine you earn $54,000 a year, which is $4500 per month.
• There are monthly payments due for your car loan ($400) and student loans ($850), mortgage ($1000), totaling $2250.
• If you divide the monthly amount of your obligation ($2250) by the monthly income ($4500) and multiply it by 100, you receive a DTI of around 50%.

The DTI at 43% can generally be the maximum amount lenders permit to get a mortgage, but there’s no particular cut-off point to be approved for credit cards. But it’s still an ideal idea to have as low DTI as possible and lower than the norm. 

The more debt obligations you have, the higher your annual income you’ll need to qualify for a credit card.

In addition to the income you earn, credit card issuers could require the balances in your savings and checking accounts, and the name and number of your workplace.