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Can You Make Minimum Wage and Still Have a Maximum Credit Score?

Editor's Note: This story was first published on Oct. 23, 2017, and updated on Jan. 3, 2018

The first day of 2018 brought a bigger paycheck for 15 million Americans as the minimum wage increased in 18 states with an additional three states making changes later in the year. Wage increases also took effect in 19 cities—that number will grow to more than 35 cities and counties with planned increases for later in the year.

The paycheck raise could total almost $5 billion in workers pockets, based on the states that made changes on Jan. 1, 2018, according to the Economic Policy Institute. More than 4.5 million Americans will see an increase in income with California alone accounting for 2 million workers.

Americans' Wages Are Going up, Will Credit Scores Follow?

In November 2017, the Labor Department noted that average hourly wages have grown by 2.5% over the past 12 months, the highest annual wage growth in more than eight years. However, that was a rate that was "below expectations," according to a statement from U.S. Secretary of Labor Alexander Acosta. While wage growth fell short, consumer confidence reached a 17-year high in November according to The Conference Board.

The trend of increasing wages will continue with the minimum wage increases across 21 states in 2018. The median U.S. household income increased to $59,039 in 2016, the second-straight year of growth according to the Census Bureau. The increase brought the median income above the prior peak of $58,665 in 1999.

Even with Americans making more money on average, many of us still struggle with personal finance challenges which can turn into credit challenges raising the question of whether higher wages for American workers help their credit scores?

How Does Income Factor into My Credit Score?

Income is not part of a credit report and is not a factor considered by credit scores and has no direct effect on a credit score. Lenders usually pay more attention to your credit history and payment history versus how much money you make when evaluating credit risk. Lenders will use your income as a way to measure a consumer's ability to repay a loan by comparing income and assessing the borrower's debt-to-income (DTI) ratio.

However, there can be a correlation between income and credit scores whereby population segments with higher income have, on average, higher credit scores. The national FICO® Score average in July was 700, an all-time high; it's now at 702.

The table below shows that the average score for those who made an estimated $15,000 or less is 652, which is at the high end of the "fair" range versus 739 for those with an estimated income of $200,000+. Note, these figures represent "averages"—meaning there are many individuals with higher and lower FICO® Scores in each of these estimated income ranges.

Income (est.)*Avg. FICO® Score 8
Under $15,000652
$15,000 to $24,999678
$25,000 to $34,999674
$35,000 to $49,999681
$50,000 to $74,999700
$75,000 to $99,999714
$100,000 to $149,999721
$150,000 to $199,999732
$200,000 and over739
*The Income estimates are based on credit bureau data and may show a correlation to credit scores that is higher than correlation to actual income.

Can Someone Earning Minimum Wage Have an 850 FICO® Score?

The short answer is yes—an individual making minimum wage could have an 850 FICO® Score. As income or wage is not a factor considered in the score calculation, there is no logic in the score that would reduce points for making minimum wage (or award points for having a high income). The actions that drive a high score are focused on how one manages their credit—such as; paying bills on time, using available credit responsibly and only applying for credit cards when needed.

Could a Higher Minimum Wage Boost Your Credit Score?

Currently, 2.2 million Americans are living at or below the federal minimum wage, which has been at $7.25 since 2009. Thirty states provide a wage above the federal minimum. Consumers who live in those states with a higher minimum wage have a higher average FICO® Score, 706, versus 696 in states that offer the federal minimum.

Among the top 10 states with the highest average FICO® Score, six offer a wage higher than the federal minimum and five of those states just increased that wage on Jan. 1. When you look at the top 20 ranking, 14 states have a higher wage ranked among the top states and 10 states raised their minimum wage on Jan. 1 or plan to later in 2018. These FICO®Score figures represent "averages"—meaning there are many individuals with higher and lower scores in each of these states.

 Click to view the chart.

StateCurrent Minimum Wage (New in 2018)Effective Date (Expected Date)Avg. FICO® Score
Minnesota$9.651/1/2018730
North Dakota$7.25724
South Dakota$8.851/1/2018724
Vermont$10.501/1/2018724
New Hampshire$7.25721
Massachusetts$11.00721
Nebraska$9.00720
Hawaii$10.101/1/2018719
Iowa$7.25718
Washington$11.501/1/2018718
Wisconsin$7.25718
Montana$8.301/1/2018716
Oregon$10.25 ($12.00)(7/1/2018)713
Colorado$10.201/1/2018713
Maine$10.001/1/2018712
Connecticut$10.10711
Utah$7.25711
New Jersey$8.601/1/2018710
Pennsylvania$7.25710
Kansas$7.25709
New York$13.0012/31/2017709
Rhode Island$10.101/1/2018709
Wyoming$7.25708
Illinois$8.25707
Idaho$7.25707
Virginia$7.25706
California$11.001/1/2018704
Ohio$8.3051/1/2018702
Michigan$9.251/1/2018702
Alaska$9.841/1/2018702
Maryland$9.25 ($10.10)(7/1/2018)700
Missouri$7.851/1/2018699
District of Columbia$11.50 ($13.25)(7/1/2018)697
Delaware$8.25697
Indiana$7.25695
Arizona$10.501/1/2018692
North Carolina$7.25691
Florida$8.251/1/2018690
Kentucky$7.25689
Tennessee$7.25686
West Virginia$8.75684
Arkansas$8.50682
New Mexico$7.50682
Nevada$8.25 (TBA)(7/1/2018)681
Oklahoma$7.25681
Texas$7.25678
Alabama$7.25678
South Carolina$7.25678
Georgia$7.25677
Louisiana$7.25675
Mississippi$7.25666

Drawing a parallel between a higher wage and credit score isn't conclusive as there are a lot of different factors outside income that affect a credit score.

New York state has the highest minimum wage at $13.00 per hour (see details), ranked 21st for an average FICO® Score of 709.

The District of Columbia, which tied for the second highest minimum wage at $11.50 per hour, ranked 34th with an average FICO® Score of 696 and Washington state also has an $11.50 per hour minimum wage, ranked 10th overall with an average FICO® Score of 718.

What If I Struggle with Debt?

Remember that paying your bills on time will always contribute significantly towards achieving better credit scores. If you can pay down your debt or consolidate your debt, it will help improve your credit utilization ratio, another factor that lenders examine.

You should only apply for open credit accounts when you need them. This can help positively affect your credit history and reduce hard inquiries. Even if your score is good, the factors will help you identify what you need to focus your efforts on to become even more creditworthy.


Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
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