How To Calculate Annual Income For Credit Card Application

Finance1 year ago
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Are you struggling to calculate your annual income? Whether you are a veteran credit card holder or are applying for your first credit card, filling out your application and making sure you are providing the correct information can be intimidating.

When you apply for a credit card, issuers and banks will want to know a variety of different information. But one of the key questions they will have for you regards your gross annual income and total annual income. Your answers to this question will impact how and where products are offered to you.

So, you must have a clear idea of how much money you have coming in and out, a breakdown of your sources of income, and what personal income you need to include in your answer.

Before we delve any deeper into this issue, we must stress how important it is to be accurate about your monthly income when applying for a credit card. Lying on a credit card application can result in your application being rejected and you may have to face legal ramifications.

If you have already owned a few credit cards in your time, you may be wondering whether the information you have been providing is as accurate as possible. Or perhaps you are just about to apply for your first card and are worried about whether the information you are providing about your types of income is correct.

Below we will talk you through what you need to know about reporting your income when you apply for credit card approval and why being accurate is so important.

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Why Do You Need to Provide Your Income When You Apply For a Credit Card?

When you apply for a card, a credit card issuer will need a clear idea of your current financial status. Questions about your types of income, debt-to-income ratio, and other financial info are all essential.

Banks need to be confident that you are capable of paying back the money which they are crediting you each month. And under the Credit Card Act of 2009, credit card issuers are legally responsible to make sure that they are confident customers can pay back what they lend.


Credit Card Issuers Need To be Confident You Can Pay Off Your Credit

Although the act doesn't state that you need to hit a certain target for your total annual income to qualify for a card, banks do need to be confident that you are financially capable of covering the credit issued. And they need clear and correct financial information from you to judge this.


Your Monthly Card Limit Depends on your Financial Status

The information you include when you report income on a credit card application will also allow the bank to judge what your credit limits should be on the card. This helps issuers make sure they are not extending large lines of credit to people who are incapable of paying them back.

For example, if your monthly salary totals $10,000 a month, extending a credit line of $20,000 a month won't make much sense. But a credit limit of $5,000 means that your monthly bills are likely to be easily covered by your income.

How much a credit card company feels comfortable lending you will depend upon your financial information such as income, credit reports history, and current credit scores. Different issuers may also extend different credit limits based on their policies.


What Types of Financial Information Should be Included in Your Credit Card Application?

When you apply for a credit card, you can include several different types of income when stating your total annual income. As we looked at above, credit card issuers will generally allow high credit limits to those with higher incomes. So it is worth it to check exactly what your actual income is.

If you are aged 21 and over, you can include a variety of income sources that you have a reasonable expectation of accessing each month. These can include:

  • Full-time or part-time income.
  • Social security payments.
  • Pension or retirement fund payments.
  • Child support
  • Alimony payments
  • Income from investments.
  • Gift payments
  • Trust fund payments.

If you share your home with a spouse or partner, you can also include their income when totaling your "household income."

If you are aged under 21, you will only be able to include personal income from the following:

  • A full or part-time job.
  • Scholarships.
  • Grants.

Unless your parents are co-signees on your card application you will not be able to include their income on your application.

Your student loans should not be included as income on your credit card application as they qualify as debt.


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How Do You Calculate Your Total Income on Credit Card Applications?

The information you are asked to give and the structure of the form you fill in will differ from bank to bank. Some issuers will ask for a breakdown of each of your types of income and how much money you have incoming for each. Others will be vaguer when asking for this information.

Here are some terms you need to have a good understanding of before you complete your credit card application.


What is Your Gross Income?

Your gross annual income is made up of all of the money you have incoming before education and taxes. This can include your monthly salary, average monthly tips, any income you have from rental properties or side businesses, interest in savings and investments, and side hustles.

Work out how much you have incoming each month and multiply this by 12 to get your gross annual income amount.


What is Your Net Annual Income?

Your net income is the money you have left after you have paid your expenses such as income taxes, your 401k, and other contributions. This is the amount you end up being paid in your paycheck once the deductions have been made.

It is important to sit down with your banking app, paycheck breakdowns, and bills to make sure you are giving your best estimate. If you have an income that fluctuates seasonally then you should give an honest average estimate.


How to Calculate Your Annual Income for an Hourly Wage

If you are paid hourly, you need to multiply your hourly rate by the number of hours you work each week (if this changes from week to week, work out an average to work with.)

Then you multiply this amount by the number of weeks you work each year. This will give you your annual income.


Do Credit Card Companies Check Your Annual Income?

So, once you have input your annual income, how do banks check that the information you have provided is correct?

Well, your annual income won't show up on your credit reports from organizations such as Experian - so most card issuers don't actually verify the amount you have put in.

For lower lines of credit, doing further check is often not worth the time and money spent.

However, they may use the information included on your credit reports to create a "model" of your income and check this against the information you have provided. They may also double-check to make sure the wage you are claiming makes sense in the context of your stated employment.

Card issuers may also choose to conduct a financial review if you raise red flags according to their internal guidelines.

If you have bed credit and are applying for a card, some issuers will require access to your bank accounts so that they can check your current balance themselves.


What Happens If You Lie About Your Income on A Credit Card Application?

Although card issuers will not directly verify your annual income, you should not lie on your application. This would amount to fraud and you could find yourself facing fines or even potential jail time if you are found out.

At the very least, you may find yourself in a spiraling-debt situation as you are issued with a high credit limit that your income can cover.

When it comes to providing your annual income on a credit card application, it is always worth it to give a truly accurate and honest answer to avoid problems later on.

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