What defines income for a credit card application?
Apr 15, 2019, 12:03 pm
#1
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What defines income for a credit card application?
I saw an interesting discussion on another forum and am wondering what people here think. What is income for purposes of a credit card application?
I would have thought adjusted gross income plus non-taxable income, as shown on your tax returns, would be the correct answer, but some people would include unrealized capital gains and undistributed income in an IRA, as well as some other things. https://www.bogleheads.org/forum/vie...94826#p4494826
I would have thought adjusted gross income plus non-taxable income, as shown on your tax returns, would be the correct answer, but some people would include unrealized capital gains and undistributed income in an IRA, as well as some other things. https://www.bogleheads.org/forum/vie...94826#p4494826
Apr 15, 2019, 12:39 pm
#3
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If you have an $X million portfolio of liquid assets that could be used to cover credit card bills, would you feel comfortable saying that you had income of $X million?
Apr 15, 2019, 1:43 pm
#5
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However much the portfolio generates in terms of dividends and distributions works for me.
Apr 24, 2019, 1:30 pm
#6
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That was my problem with "Income = whatever cash you can come up with to cover your credit card bills", since you can use assets/net worth to come up with cash to cover the bills.
However much the portfolio generates in terms of dividends and distributions works for me.
However much the portfolio generates in terms of dividends and distributions works for me.
Apr 24, 2019, 2:09 pm
#7
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I don't think your previous income is relevant. I would probably list ~5% of the retirement account balances, because that's an amount I would feel comfortable stating that I "planned" to withdraw in a year.
Apr 25, 2019, 8:55 am
#8
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Our family has complicated income. Some is guaranteed salary, some is commission, some is investment growth. What I've settled on is current year salary guarantee + target commission (without any additional upside or bonuses) + 4% of investments (based on the infamous Trinity Study work as an approximation). I would be comfortable defending that as a conservative point of view if a lender ever questioned it.
Apr 25, 2019, 9:45 am
#9
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The easiest number to defend is what you filed for taxes. A lender could ask you (in theory) to provide permission for them to view a transcript
https://www.irs.gov/forms-pubs/about-form-4506-t
Most credit card / unsecured lenders aren't that hyper about this stuff.
Mortgage lenders are, because they are often selling their home loans, and income verification is needed to include the loans in GSE securitizations.
Modern lenders look at many data points when determining your capacity to repay them - where you live, what you drive, etc.
https://www.irs.gov/forms-pubs/about-form-4506-t
Most credit card / unsecured lenders aren't that hyper about this stuff.
Mortgage lenders are, because they are often selling their home loans, and income verification is needed to include the loans in GSE securitizations.
Modern lenders look at many data points when determining your capacity to repay them - where you live, what you drive, etc.
Apr 25, 2019, 10:03 am
#10
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Understood, but not responsive to the problem described by TxTrav in which assets are available to increase income at will. The issuers' "income" based model doesn't accommodate households with high assets and low income.
Apr 25, 2019, 10:54 am
#11
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Q: Why did you write $200,000 when your portfolio generated $100,000 in taxable and tax-free distributions?
A: Because I have $5,000,000 in liquid assets, can easily generate that amount of income and can easily pay my credit card bills, as I have for the past 40 years.
Should we feel comfortable proceeding on that basis? How would an issuer likely react?
Apr 25, 2019, 10:56 am
#12
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Apr 25, 2019, 11:00 am
#13
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If undistributed assets from a defined contribution plan (401k, IRA vs a defined benefit plan, pension) cannot be viewed as income, then people are increasingly having a problem applying for credit cards, given the history of society for decades turning away from pensions. I would think though that recent distributions from same assets would form a sufficient pattern for future distributions to qualify for credit card companies as income.
The problem is what to report when you could make distributions but choose not to, for tax management or other reasons.
Apr 25, 2019, 3:06 pm
#15
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