When you apply for a credit card, income is one of the factors creditors use to determine your creditworthiness. You’ll be asked to list your income on your application, although the type of income card issuers ask for can vary depending on the card issuer.
Income can also vary, and doesn’t necessarily need to be traditional wages. Here’s more about how to accurately report income on a credit card application:
What is annual net income?
Issuers often use different phrases to ask for your income on an application.
Some credit card issuers will ask specifically for your net income, or the amount of money you bring home in your paycheck after taxes, health insurance premiums and retirement contributions are taken out.
Others may explicitly ask for your gross income.
The difference between your net income and your gross income is simple. Where your annual net income is how much you bring home in your actual paychecks after deductions are taken out, your gross income is how much you earn before deductions and taxes are taken out.
If you apply for the Chase Freedom Unlimited®*, for example, they’ll ask for your “total gross annual income.”
Your gross income may be easier to calculate. It could be the annual salary you agreed to when you accepted your job. If you are paid an hourly wage, on the other hand, you may need to figure out your gross income using last year’s tax return or by multiplying your gross weekly income by the number of weeks you work within a year.
What counts as income?
Income doesn’t have to include only traditional wages reported on a W-2 from an employer. In fact, there are multiple different types of income that issuers allow you to report when giving your total annual income.
Why? Your income data gives issuers another data point (in addition to the information on your credit report) to determine your ability to keep up with credit card payments before they approve your application.
Depending on the card you’re applying for, the issuer may give details about which specific income types you can use on the application form. Here’s a more general look at what income sources you may use.
- Personal income: Wages you receive as a full-time or part-time employee or money you earn via self-employment or contract work
- Allowances and gifts: Money that someone else deposits into your accounts regularly
- Social security income and regular withdrawals from retirement accounts
- Non-taxable income: Public assistance, disability payments, worker’s compensation and child support may be reported as income
- Income from others that you use for living expenses, such as a partner or spouse’s income (this applies to applicants 21 and older, per the Consumer Financial Protection Bureau)
- Scholarships or grants
- Money earned from investments
However, if you’re between ages 18 and 21, you may only report your independent income on your application. Even if you’re still a dependent under a parent or guardian, only the income you personally make will count toward your reported income.
How to calculate your annual net income
If a credit card application is explicitly asking for your annual net income, you may need to complete some basic calculations. Here’s an overview:
Start with the annual salary you earn in your job, minus deductions from your paycheck such as taxes and retirement contributions. You can find this information listed on the tax return you filed last year. Alternatively, look for your net income per pay period on your most recent pay stub, then use that figure to determine your annual salary.
For example, say your take-home pay is $600 per week after taxes, retirement contributions and premiums for health insurance. Your estimated annual net salary would be $31,200 ($600 per week x 52 weeks = $31,200).
Additional sources of income, like those listed above, can also count toward your annual net income. If you have a side gig that’s separate from your regular salaried income, for example, you can also include those earnings.
Some additional sources of income may be accepted, but you don’t have to report them.
On the credit card application for the Bank of America® Customized Cash Rewards credit card, for example, it states that “alimony, child support or separate maintenance income need not be revealed if you do not wish to have it considered as a basis for repayment.” Still, you can list these sources of income if you do want them to be considered as part of your annual income.
After you’ve determined all of your income sources, you can add the net annual income you already calculated together with any additional income and list this amount on your credit card application.
Why do credit card applications inquire about your income?
Credit card issuers ask for your income on your application because they need to be sure you can repay your debt. While exact approval criteria for credit cards is considered proprietary information, they typically look at your income, your credit score and other factors to come up with a general idea of your creditworthiness. That helps the issuer decide whether to approve you for the card.
Beyond protecting their own interests, issuers must determine whether the applicants they approve have the financial means to repay what they borrow under the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act of 2009). Specifically, 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.”
Why you should never lie about income in a credit card application
No matter how much you may want to qualify for a new card, you should never lie on a card application.
Knowingly listing false information on a loan application, which includes credit card applications, is considered identity fraud. Fraud is a federal crime, with substantial consequences.
What else is included on your credit card application?
Beyond reporting your income, you’ll need to give the credit card issuer a few more identifying personal details on your application.
Your name, address, phone number and email address are standard. You may also be asked whether you rent or own your place of residence and your type of employment. And you’ll need to submit an ID number. This is usually a Social Security number, but you may also use an Individual Taxpayer Identification Number.
Finally, you may be asked to electronically sign your application and even determine upfront whether you’d like to opt into paperless billing.
The bottom line
Income is an important part of what you report to issuers on a credit card application.
Exactly what makes up that income may differ — some may ask for the actual sum of money you bring home before deductions and taxes are taken out (gross income) or after (net income).
Take the time to provide an honest estimate. It is never a good idea to exaggerate your income. But also make sure you’re listing all eligible income sources — such as side hustle income or income from part-time work — to improve your chances of being approved.
*The information about the Chase Freedom Unlimited® has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.
