This Simple Mistake on a Credit Application May Cost You

By Ashley Eneriz. Last updated 1 September 2016. 0 comments

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Besides your credit score, your income may play an important factor in whether you get approved for a credit card, and the amount of credit you will be approved for. But for those with freelance jobs or other variable sources of cash, determining an exact income to report can be difficult.

See also: 7 Tips for Filling Out Credit Card Applications for the Best Chance of Approval

Obviously, you want to be as accurate as possible, but you also want to report the highest amount of income applicable so that you can qualify for your card. Your income is how credit card companies can determine if you are able to pay back your debt. Even if you do not plan on accumulating credit card debt, credit card companies still look at you as a debt risk. If you only say that you make $20,000 a year, then why would a credit card company want to take a chance on you with a $12,000 credit line?

Types of Income You Can Report on a Credit Card Application

Applicants over the age of 21 can list a wide range of types of income that they have reasonable expectation of access to. Here are some of the following types of income considered:

Personal Income

Put simply, this is your gross income figure. If you are a freelancer or self-employed, base this number off your total income the year before or your average monthly income multiplied by 12. For example, if you regularly make $2,500 to 3,000 per month, then reporting an income of $33,000 should be fairly accurate.

Spousal Income

As of 2013, you can count income from your spouse or partner on your application.

Allowances and Gifts

Do you regularly get a few hundred dollars for your birthday from family members and friends? You can add it to your income list.

Scholarships and Grants

This is a benefit for college students who have received scholarships and grants for the school year. If you are not accepted for a credit card, call the reconsideration line and talk about your scholarships and other redeeming qualities (i.e. leadership programs you run at school, GPA, and other accomplishments that can boost your credit worthiness).

Trust Fund Distributions

If you're fortunate enough to have a trust fund, report the average amount you expect to receive in a typical year.

Retirement Fund Distributions

Retired? Great! Don't forget to list distributions from 401Ks, IRAs, or other retirement funds.

Social Security Income

Ditto for Social Security income. List your yearly benefit amount as income.

For borrowers between 18 and 21, only independent income can be reported. This includes personal income (including any regular allowances from relatives) and scholarships and grants. Borrowers between 18 and 21 might have better luck being added as an authorized user on a parent's account. This can help build up credit history without having to turn to high interest fee cards.

Types of Income You Should Not Report

Note that student loans do not count as income. Once you graduate, student loans become debt you must repay, and it is best not to pile on credit card debt on top of that.

Your mortgage or equity in your home should also not be considered income.

Consequences of Lying About Income on Credit Card Applications

While you might want to gain access to a credit card, it is never a good idea to lie about your actual income. Stretching the truth on your application and getting approved can mean that you are more likely to get into debt without the income to get you out.

On a more serious note, lying on credit card applications is considered credit card fraud, which is punishable by up to $1 million in fines and up to 30 years of prison. While these punishments are on the extreme side, individuals caught falsifying income to gain loans or credit cards have been hit with hefty fines.

In 2012, 52-year-old New York resident David P. Gaylord faced charges for reporting an inflated income of $90,000 to $122,000 on three credit card applications in 2006. However, the IRS reported his income as $12,488 that year. Gaylord was sentenced to five years of supervised release and ordered to pay $46,914.73 in restitution.

See also: Why Your Credit Card Application Was Denied and What to Do About It

If you are still unsure about how to fill out your application, consider calling the credit card company to talk with a person who can guide you through the application process.

Do you have multiple sources of non-wage income? How do you report it on credit apps or elsewhere?

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