Can You Have Bad Credit Even With a Good Income? (2024)

Yes, you can!Your credit score doesn'treflect how much money you make, only how much you owe and whether you can pay it back.

If you earn a modest income, it’s easy to be envious of the super-wealthy. They travel around the world, eat at Michelin-rated restaurants, and shop for high-end luxury items. They enjoy a lifestyle that’s nothing more than a pipe dream for most of us.

However, when it comes to credit, your score may be just as high, or higher, than billionaires like Bill Gates and Richard Branson. That’s probably not much consolation, but it is the truth.

It may seem like credit scores should increase with your income, but the truth is much more complicated. Read on for a deep dive into what makes up your credit score and why just being wealthy can’t protect you from bad credit.

Why credit bureaus don’t care about your income.

Despite what many people think, your credit score is completely independent of your income. People with $20,000 salaries can have good credit scores, just like those with $200,000 incomes can have poor credit scores.

Credit scores only look at one thing—your credit history. It doesn’t matter how large your 401k is or how much equity you have in your house. A credit score doesn’t show how much you earn, how stable your job is, or how much you save. Though a credit score is a popular financial barometer, it’s not a comprehensive measure of your financial situation. Credit bureaus don’t collect information about your income, only about how you treat the debts you’ve assumed.

“The purpose of credit scores is to help assess the risk a person will not pay a debt as agreed—regardless of income,” said Rod Griffin, Senior Director of Public Education and Advocacy for Experian.

A lender looks at your credit score because it reflects how well you manage your credit obligations. A high credit score means you’re dependable and reliable, and a poor credit score usually indicates negligent or irresponsible financial behavior.

Some consumers mistakenly think income is part of their credit score because lenders ask for it on applications and might use it as a reason to deny a line of credit. If you have a good credit score and low income, you might not qualify for a loan because the lender thinks the payments will be too high.

Conversely, if you have bad credit with good income, you can also be denied. According to Griffin, your credit history is typically more important to a potential lender than your income, because the former shows your track record of managing debt.

“Understanding the components of your credit report is essential because a strong credit history increases your access to the financial services you need,” he said.

How high-earners end up with bad credit.

Since income is not one of the five factors that determine a credit score, the wealthy are just as likely to have a low credit score as the people with lower income. The rich can miss payments, rely too heavily on credit, and open too many new accounts, all of which may lower their credit score.

On a practical level, it boils down to whether or not your income can support your lifestyle. We’ve all seen examples of lifestyle creep, where you start to scale up your expenses as your income increases, and the wealthy are no more immune to this. A busy mother of three working in a call center can attain a perfect credit score by diligently paying her bills, just like a superstar basketball player can tank his score with a few purchases he can’t afford.

However, wealthy people may also have a bad credit score or no credit because they don’t borrow money. If you can afford to buy your house or car in cash and only use a debit card, you won’t build up a credit history.

The fact is, a poor credit history doesn’t really matter if you don’t need to borrow money. Many financially independent or early retirees have no credit or poor credit because they only use their debit cards.

What makes up your credit score.

Though the exact algorithm is a secret, FICO uses the following factors to decide your credit score:

  • Payment history: Your history of paying credit bills on time makes up 35% of your credit score. This is the most important component and also the easiest to improve. If you pay your bills on time every month, your credit score may increase. While missing payments repeatedly, your credit score will get affected. Switching to auto-pay will guarantee you’re never late again.
  • Amounts owed: How much you owe relative to how much credit you have available to you constitutes 30% of your credit score. This is also known as your credit utilization ratio. If you owe $35,000 on your credit cards and have a credit limit of $100,000, you have a credit utilization ratio of 35%. Credit bureaus don’t like to see a ratio of more than 30%. Anything higher makes them worry that you can’t afford to pay down your balance and that you’re relying too heavily on credit.
  • Length of credit history: How long you’ve had credit only counts for 15% of your credit score. The longer you’ve had your accounts, the better. The only way to improve this section is to avoid opening new accounts and keep your oldest accounts active.
  • Type of credit: Lenders like to see a variety of credit accounts on your report, including student loans, auto loans, credit cards, personal loans, and mortgages. You won’t be heavily dinged for not having more than one or two different types of accounts, as this part only makes up 10% of your credit score.
  • New credit inquiries: Any time you open or apply for a new line of credit, it shows up on your credit report. New inquiries account for 10% of your credit report. The more inquiries you have on your report, the lower your score will be. It takes one year for inquiries to disappear from your report, and if you’re applying for a big loan like a mortgage, it’s best not to have any recent inquiries on your credit report.

If you have a solid income and a poor credit score, there are plenty of ways you can increase your score quickly. Go through your credit report and look at any red marks. Are you bad at paying your bills on time? Or is your credit utilization ratio too high?

Address each reason you see a negative score and work on improving those areas. You may see a higher credit score in just a few months if you follow the right steps.

Article contributors

Can You Have Bad Credit Even With a Good Income? (1)

Rod Griffin is Senior Director of Public Education and Advocacy for Experian(Experian_US). He leads Experian’s national consumer education programs and supports the company’s community involvement and corporate responsibility efforts. Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft.

Can You Have Bad Credit Even With a Good Income? (2024)

FAQs

Can You Have Bad Credit Even With a Good Income? ›

A credit score—used to measure risk—is entirely independent of how much money you make and instead is based on how you manage your finances, i.e., how much you owe and how you pay it back. High net worth individuals can still miss payments, rely too heavily on credit, or open too many accounts.

What if I have bad credit but good income? ›

Good pay doesn't mean good habits

Your credit score on its own doesn't say much about your income. Because it's based on your borrowing behavior and history, as well as your ability to manage debt, you can have good credit on a low income or bad credit on a high income.

Can you be rich with a bad credit score? ›

Since income is not one of the five factors that determine a credit score, the wealthy are just as likely to have a low credit score as the people with lower income.

Does credit score or income matter more? ›

Your income doesn't affect your credit scores directly. But it may still affect your ability to get a loan, open a new credit card or pay your bills on time — any of which could indirectly influence your credit scores.

Does credit score depend on income? ›

While income doesn't have a direct impact on your credit score, it can have an indirect impact since you need to have sufficient income to pay your bills. And if you don't make enough money to cover your bills, you can rack up debt or miss payments, which can negatively impact your credit score.

Can you live life with bad credit? ›

Life without credit isn't impossible. But you'll probably have an easier time if you start building up your credit now. (In the meantime, if you're considering a bad credit loan, you'll want to check out the OppU Guide to Bad Credit Loans here.)

Is poor credit worse than bad credit? ›

So which scenario is worse — not having any credit or having bad credit? “Neither is good,” says Greg Reeder, CFP, a financial advisor with McClarren Financial Advisors in State College, Pennsylvania. However, “A poor credit score is worse,” he says. “If you have no credit, you can start from the ground up.

What is the poorest credit score? ›

VantageScore credit scores
  • Very Poor: 300-499.
  • Poor: 500-600.
  • Fair: 601-660.
  • Good: 661-780.
  • Excellent: 781-850.
Feb 27, 2024

Does bad credit ever go away? ›

In general, most debt will fall off of your credit report after seven years, but some types of debt can stay for up to 10 years or even indefinitely. Certain types of debt or derogatory marks, such as tax liens and paid medical debt collections, will not typically show up on your credit report.

Is bad credit a red flag? ›

If your partner doesn't want to talk about credit scores or share theirs, it may be a red flag, especially since their credit score can reveal a poor financial track record—and impact your ability to qualify for financial accounts and housing.

How much annual income do you need for a credit card? ›

Income terms for card applications

Therefore, your income helps issuers determine your credit line and whether or not you'll be able to make payments. The CARD Act does not, however, dictate a minimum income requirement, which means that it's up to the discretion of card issuers to decide.

What's a good annual income for a credit card? ›

A good annual income for a credit card is more than $39,000 for a single individual or $63,000 for a household. Anything lower than that is below the median yearly earnings for Americans. However, there's no official minimum income amount required for credit card approval in general.

What credit score do you need to buy a 400 000 house? ›

Conventional mortgages

Require a minimum down payment of 3% of the home's sale price. Tend to have much lower mortgage rates than most. Require no upfront mortgage insurance for down payments of at least 20% Have no set minimum credit score but most lenders will probably be looking for 620+

Is a 900 credit score possible? ›

Highlights: While older models of credit scores used to go as high as 900, you can no longer achieve a 900 credit score. The highest score you can receive today is 850. Anything above 800 is considered an excellent credit score.

Does one's income matter on a FICO score? ›

It's reassuring to know that your age and your salary won't determine whether you have a good or bad credit score, but you should still know what lenders will see when they evaluate your risk.

Why is my credit score so low when I have no debt? ›

Various weighted factors mean that even with no credit, your credit score could still be low because the length of your credit history or credit mix, for example, could also be low.

Will I get hired if I have bad credit? ›

It depends on things like the type of job you're applying for, the employer, your specific credit history and many other factors. In some cases, the employer might not look at your credit report at all. And even if they do, a bad credit history may not be a deal breaker.

Will I get denied a job with bad credit? ›

In a Nutshell

In the majority of states, employers can deny you employment if you have bad credit. Some states and cities have passed laws that prohibit the practice, though there are some exceptions, such as for jobs in the financial sector.

How much credit should you have compared to income? ›

35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.

Do I need proof of income if I have a good credit score? ›

You can get a loan with good credit and no proof of income, but it may be challenging, as most lenders require proof of income to ensure that you can repay the loan. If you do not have a steady paycheck, the best approach is to provide proof of an alternative form of income if the lender requests it.

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