April 27th, 2010
Dear Credit Karma… Applying For A Credit Card
Dear Credit Karma,
When applying for a credit card and submitting my Social Security number, do the credit card companies automatically see my income?
No, credit card companies do not check your income via your Social Security number. Your SSN is requested on most credit card applications to verify your identity, not peek at your salary. Your actual salary is never tied to your SSN.
However, since the CARD Act went into full effect earlier this year, issuers are now required to verify a credit card applicant’s ability to pay back their credit card. This factor has been added into the application process in order to assess if a cardholder can afford repaying the credit issued on a credit card. This information is particularly relevant since the high credit card default and charge-off rates in the wake of the recession. This provision assists issuers in protecting customers from getting in over their heads with credit card debt.
Instead, most applications ask for the applicant’s estimated household income and use this self-reported information with different income estimation models to assess your propensity to pay. Your self-reported income is forwarded to a credit bureau, and coupled with your credit report, will be used to estimate income as well as assess your debt to income ratio, debt obligation to assets, or income after paying debt obligations. While this is a rough sketch of an applicant’s ability to pay credit obligations, it is an added safeguard to consider if an applicant will be financially responsible for the card they are applying for.
These income estimation models are new and not perfect. But rest-assured you will never be required to show paycheck stubs or other financial documents for issuers to verify your self-reported income number. Finally, inflating your income to get a higher credit limit won’t really work since issuers can cross-reference your debts, loans, and credit lines on your credit report to get a fuller picture of your financial situation.
Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!
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