One common credit card question: Does your salary and income impact your credit score? You may be glad to know it doesn't. The size of your paycheck does not influence whether you have a good or bad credit score.
"Income isn't considered in credit scoring systems," John Ulzheimer, formerly of FICO and Equifax, tells CNBC Select.
"Income isn't even on your credit reports so it cannot be considered in credit scores because credit scores only consider what's on your credit reports," Ulzheimer explains. "In fact, no wealth metrics are factored into your credit scores."
That means your debt-to-income ratio and net worth also don't impact your credit score.
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What impacts your credit score?
Income doesn't affect your credit score, but it's still important to know the five main factors of a FICO credit score, which is the most common credit score used by lenders.
- Payment history (35%): Whether you've paid past credit accounts on time is the most important factor of your credit score.
- Amounts owed (30%): The total amount of credit and loans you're using compared to your total credit limit, also known as your utilization rate.
- Length of credit history (15%): The length of time you've had credit.
- New credit (10%): How often you apply for and open new accounts.
- Credit mix (10%): The variety of credit products you have, including credit cards, installment loans, finance company accounts, mortgage loans and so on.
Do lenders consider your income?
While income doesn't affect your credit score, Ulzheimer adds a disclaimer: "That certainly doesn't mean income and wealth aren't considered by lenders." After all, when you fill out a credit card application, you will be asked to enter your income.
When lenders review your eligibility for credit, he explains, they typically measure two things: Your ability to pay your bills (also known as capacity) and whether you pay your bills (also known as credit risk).
Income is considered a measurement of your capacity, not credit risk. 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.
The size of your income doesn't necessarily affect your credit limit, and having a high salary doesn't guarantee a higher line of credit. However, if you update your income with a card issuer to a higher amount, you may see an increase in your credit limit, which could be positive for your credit utilization ratio. Also, some cards, like the American Express® Gold Card, have no preset spending limit, which means they don't assign a credit limit. Terms apply.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
How does my income affect my credit score? Your income doesn't directly impact your credit score, though how much money you make affects your ability to pay off your loans and debts, which in turn affects your credit score. "Creditworthiness" is often shown through a credit score.
Does your income have anything to do with your credit score? ›
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.
Does the salary of your job show up on your credit report? ›
Your salary is not on your credit report. It has been more than 20 years since credit reports included salaries. Credit bureaus stopped collecting salary information because the data was self-reported and usually inaccurate.
Does your job affect your credit score? ›
Having a job doesn't increase your credit score, or directly impact your score at all. Neither does losing your job. But your employment and income can affect your ability to access credit since lenders consider this information when deciding whether to extend credit to you.
Is your income considered when calculating your credit score? ›
Many factors are used to calculate your credit scores, including things like payment history, your current debts and even the length of time you've had an account open. But your income, banking history and certain bills aren't part of the mix.
Does my salary affect my credit score? ›
How does my income affect my credit score? Your income doesn't directly impact your credit score, though how much money you make affects your ability to pay off your loans and debts, which in turn affects your credit score. "Creditworthiness" is often shown through a credit score.
Can you be refused credit because of your income? ›
They cannot deny credit because of the source of your income. If you are married and share an account, the companies that report your account information to a credit reporting agency must report both of your names. This will enable each of you to build separate credit histories.
What credit score will prevent you from getting a job? ›
Know Your Rights
Before diving into employment and credit laws, let's dispel a myth that's been perpetuated online. When you hear things like “a bad credit score can prevent you from getting a job,” it's actually not true. That's because employers don't pull your actual credit scores like a lender might, says Griffin.
How do creditors know your income? ›
They typically ask about your income on credit applications and may require proof, in the form of a pay stub or tax return, before finalizing lending decisions. Sometimes creditors ask for proof of employment and the name of your employer on credit application as well.
What are the two most important factors in calculating your credit score? ›
Payment history and your credit utilization ratio are the two top factors that affect your credit score. Payment history shows your ability to make payments consistently and on time. This factor is so heavily considered because lenders will want to know how reliable you are when it comes to paying back your debt.
While missing employers on your credit report isn't generally a concern, if an employer shows up on your credit report that you don't recognize, or if there's other incorrect information, you have the right to dispute it with the credit reporting agency.
What is considered bad credit? ›
A bad credit score is a FICO score below 580, meaning it falls in the poor credit range. Along the same lines, a bad score in the VantageScore model is one below 601, which would belong in the poor or very poor credit ranges.
What is a good credit score? ›
Generally speaking, a good credit score is 690 to 719 in the commonly used 300-850 credit score range. Scores 720 and above are considered excellent, while scores 630 to 689 are considered fair. Scores below 630 fall into the bad credit range.
What affects your credit score the most? ›
1. Most important: Payment history. Your payment history is one of the most important credit scoring factors and can have the biggest impact on your scores. Having a long history of on-time payments is best for your credit scores, while missing a payment could hurt them.
What's more important, credit or income? ›
"Income — and in particular, your income in relation to your debts — plays an important role when lenders decide your credit limit," Dornhelm says. Because your salary shows how much you make, and your debts show how much you owe, the two factors combined give lenders an idea of your capacity to repay what you borrow.
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.
Is there a correlation between income and credit score? ›
Like age and location, income bears no direct impact on your credit score, but the two factors still seem to be related. Why? One possible reason is that lower income may result in a lower ability to pay debts consistently, while higher income may result in a stronger payment history.
Is credit score or income more important? ›
“Income — and in particular, your income in relation to your debts — plays an important role when lenders decide your credit limit,” Dornhelm says. Because your salary shows how much you make, and your debts show how much you owe, the two factors combined give lenders an idea of your capacity to repay what you borrow.
Do income taxes affect credit score? ›
Your taxes don't affect your credit scores. However, taking out a loan or credit card to pay your taxes can impact your credit scores. And missing your tax payments could hurt your creditworthiness even if it doesn't affect your scores.
What if I have good credit but no income? ›
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.
