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Income is not part of your credit report. And while lenders often factor your income into their lending decisions, they'll typically get that information directly from you during the credit application process. Because it is not part of your credit report, income is not considered by credit scoring systems that use only your credit history.
What Is Included in Your Credit Report?
A credit report is a record of your history of managing and repaying debt. It's the basis for your credit scores, and one of the tools lenders and other companies use when deciding whether to do business with you and, if so, on what terms.
Credit reports are maintained by three major national bureaus (Experian, TransUnion and Equifax) and compile information on how and when you pay your bills, how much debt you have and how long you have been managing credit accounts. More specifically, your credit report includes:
- Personal information: Your name, recent addresses, current and past employers, and names of anyone with whom you've jointly applied for credit.
- Accounts: Your open and closed loans and credit card accounts. (The length of time your accounts remain on your report depends on how you've managed them and other factors.)
- Inquiries: Companies' requests for your credit report or credit score, which remain on your credit report for two years.
- Public records: If you file for bankruptcy, the details will appear in this section of your credit report, where they will remain for seven or 10 years depending on the type of bankruptcy.
Lenders May Ask for Income Information
Lenders often factor your income into their lending decisions and, under the Credit CARD Act of 2009, they are legally obligated to do so in many cases. They typically ask about your income on credit applications and may require proof, in the form of a pay stub or tax return, before finalizing lending decisions.
Sometimes creditors ask for proof of employment and the name of your employer on credit application as well. If they do so, the names of past employers may appear in the personal information section of your credit report. Like other items in the personal information section, those employers have no bearing on your credit standing or credit scores.
Does Income Affect Credit Score?
Your credit scores are calculated using information in your credit report and don't consider your income as a factor. The factors that do influence your credit score include:
- Payment history: Timely payments help improve your credit score; late and missed payments can hurt your score significantly.
- Credit usage: The percentage of available credit you're using on your credit cards, also known as utilization rate, has considerable influence on credit scores. Rates greater than 30% can do serious damage to your score, but in general, the lower, the better.
- New credit accounts: Credit checks associated with credit applications and opening of new loan or credit accounts can temporarily reduce your credit score, though scores tend to rebound within a few months as long as you keep up with your debt payments.
- Length of credit history: This factor considers how long you've been managing and repaying debts. A longer credit history is seen as a mark of experience with credit management. All other factors being equal, a longer credit history tends to lead to a higher credit score.
- Credit mix: This is the number and variety of loans and credit accounts you have. Lenders view a combination of credit accounts as a sign you can handle credit well, so a varied credit mix tends to promote higher credit scores.
Because income is not found in your credit report, it cannot influence your credit scores directly. A reduction in income can, however, affect credit scores indirectly if it causes you to fall behind on debt payments, drive up your credit card balances or take on new debt. By the same token, an increase in income could make it easier for you to afford additional credit, but won't affect your credit score unless you use your new income to address the factors that affect your score directly.
A loss or drop in income may also affect your ability to qualify for new loans or credit, since lenders typically look at debt-to-income (DTI) ratio—the percentage of your monthly income required to pay your monthly debts—when evaluating your creditworthiness. A reduction in income increases DTI ratio, and could make you ineligible for certain types of credit.
Check Your Free Credit Report and Credit Score
A good way to track the status of your personal credit is to check your free credit report and free credit score. Your FICO® Score☉ from Experian includes information about the specific factors that are helping your credit score, as well as factors preventing you from having a higher score. No matter what your income level is, you can use that information to start working toward a better credit profile.