Kristy's Blog

Even though it’s a crime to exaggerate your income on credit card applications or loan paperwork, many people are tempted to do just that so they can obtain the best credit terms possible. But just how do credit card issuers verify a potential borrowers income? Interestingly enough, credit card issuers do not directly verify your income before opening a credit account for you. This practice stands in stark contrast to lenders that issue home mortgages or car loans that do check to ensure that your income is the amount you stated on your application.

While credit card companies will take you at your word in terms of the income you state on your application, they do verify that your income is consistent with all of the other financial data you reported on your application. Income is indirectly inferred from entries like reported car payments or mortgage payments.

Not All Credit Cards Are Created Equal

One notable exception to the general credit verification practices of almost every other credit card is how American Express will periodically review the finances of its cardholders. When this happens, all of the consumer’s AmEx accounts are temporarily suspended and AmEx requires that person to grant the company access to their tax returns, which allows them to directly verify your income. After they’ve completed their review, and found that the consumer’s income is the amount that was reported, then all accounts are re-activated.

In cases where a consumer has generated a considerable amount of debt and is late making a payment, a credit card company may ask that consumer to verify their income.

What Can You Do To Make Your Income Look Larger?

Even though you must be honest about reporting the size of your income, most credit card companies have fairly broad criteria as to what constitutes income. You can use the salary from your job of course, but did you know that you can use investment income, income from rental properties, federal and state benefit payments, freelance income, alimony, and child support as part of your income. So, if you have a full or a part-time job, and you’re getting Social Security, you can combine those amounts to pump up the amount of income you can report.

In addition to the income streams stated above, the provisions of the Consumer Financial Protection Bureau (CFPB) allow consumers to combine their income with that of their spouse or domestic partner so long as they are actually sharing expenses such as credit card payments.

Why Honesty Is The Best Policy When It Comes To Reporting Income

Most Americans are taught from childhood that it’s always best to tell the truth, and that lying is wrong. As the old saying goes, “you can’t cheat an honest man.” Honest people also don’t have to worry when a lender or the IRS vets their finances. Remember that lying on financial forms is a form of fraud that can you get you fined with fines up to seven figures (!), or even be sentenced to jail time (up to 30 years). People have been convicted of lying on credit card forms to obtain high credit limits that they were subsequently unable to pay off. One extreme case in 2012, involved a New York resident named David P. Gaylord, who falsely stated his income at between $90,00 and $122,000 per year on credit card applications, while simultaneously telling the IRS that he only made $12, 488 in 2006. Gaylord wound up running up thousands of dollars in charges that he was unable to repay, and declared bankruptcy. When the FBI finally caught up with Gaylord, he was given a sentence of time served, with an additional five years of supervised release. Plus, Gaylord had to pay a whopping $46, 914.73 in restitution.

Consider Your Debt-To-Income Ratio

Given the example cited above, you can see why it’s always the best idea to be honest about your stated income. Remember that one of the things that all credit card issuers look at is your debt-to-income ratio, which should be about 36% or less, if you want to be considered a good credit risk. However, if your income isn’t that spectacular and you’re worried about your income stream looking good on a credit card application, there are some things you can do.

• Pay down existing credit card accounts, not just your cards with revolving accounts, but any card that shows an outstanding balance. These amounts will be reported on your credit report as debts.
• If you are applying for an additional card with a company that you already have an account with, it’s doubly important to pay down as much existing debt as possible. As soon you do that, it will have a favorable effect on your credit picture with that company.
• If the company denies you additional credit, you can always contact them and negotiate. Ask them if they will close one of your other accounts, or transfer an existing balance to the new card you’re applying for. It never hurts to ask.

Things To Avoid On Your Credit Card Applications

Credit card companies may not always verify your income, but remember that they have a perfect right to do so. In order to avoid getting in trouble for providing false information on credit card applications, you should strenuously avoid the following actions:

• Inflating or distorting the amount of income you earn from any source, including jobs, investments, government payments, etc.
• Under-reporting your current rent or mortgage payments.
• Reporting that you’re gainfully employed when you’re not.
• Failing to accurately report how much debt you’re carrying. This one is easily verifiable and can quickly blow up in your face.
• Don’t under-report your income on your income tax returns. If you’re caught doing this, it will have serious repercussions. It’s simply not worth it to be a tax cheat.

You may think that your little white lies about how much you make or a credit card issuer won’t notice how much debt you’re carrying. It is expensive to carry out a full investigation of someone’s income, but if you’re applying for a significant amount of credit, the credit card company may actually go to the trouble of checking you out. Honesty really is the best policy, just in case your finances are fully vetted.