Getting a credit card opens up many possibilities, like building credit, immediate access to funds, lucrative rewards and much more.
The only thing standing between you and these opportunities is a credit card application, which typically asks for your contact information and annual income. If you’re a student, are unemployed, have no or low income or are a stay-at-home spouse, that income question may cause a lot of anxiety.
Don’t let your income deter you from applying for a credit card. What counts as income and how much you need to qualify for a credit card may surprise you. Here’s what you need to know about income requirements for a credit card.
Impact of income on a credit application
The annual income question was introduced with the CARD Act in 2009 as a way to protect consumers after the Great Recession. The Act states:
“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.”
Under the CARD Act, card issuers must make sure that cardholders can afford to pay off their balances, or at least keep up with minimum payments, which are calculated each month based on your outstanding balance. Therefore, your income helps issuers determine whether or not you’ll be able to make payments and affects your credit line.
However, the CARD Act doesn’t dictate a minimum income requirement, which means that it’s up to the discretion of card issuers to decide.
Credit card income requirements
The tricky part for applicants is that card issuers don’t typically publish minimum income requirements, since income alone is an incomplete measure of an applicant’s financial wellbeing. It’s just one factor of a more holistic measure of a cardholder’s ability to make a minimum payment: debt-to-income (DTI) ratio.
Your debt-to-income ratio shows how much money you owe versus how much money you earn. If you earn a great living but you have too much debt, you could be rejected for a credit card. So, what’s considered too much debt?
While credit card issuers determine their own requirements for DTI, the Consumer Financial Protection Bureau suggests a DTI of 43 percent to qualify for a mortgage, so this is usually the figure taken into consideration when credit cards are in question. Calculate your DTI by dividing your monthly debt (car payments, child support, mortgage payments, alimony, student loans, etc.) by your monthly income.
Let’s say every month …….
Source: https://www.bankrate.com/finance/credit-cards/credit-card-income-requirements/