Brittany writes: I am an ’07 grad with a great credit history. I have a $4,900 credit card balance on a 9.99% APR card. I am considering transferring the balance to a new credit card which offers 0% for 12 months and a low fixed regular APR. My problem is that credit card applications ask for annual income, and I was recently laid off from my finance job. I earn a few hundred a month at a part-time job, I am starting to temp, and I hope to find a new position soon, but I don’t want to lie about my income on the credit card application. What do you recommend?
Great question, Brittany. Sorry to hear about your job, I know it’s tough times down there in the New York financial world. Congrats on your good credit, though, and for having the integrity not to “fudge” your income on a credit card application. Your plan to swap that balance to 0% APR for a year sounds like a good one. Here are my thoughts.
First, a short answer: Estimate what your gross (before tax) annual income will be on your 2008 tax return. Include your year-to-date income from your old full-time job and your full-year part-time income and a reasonable estimate of what you expect to make temping or at a new job. That’s 100% honest, and it should be plenty for the card company to approve your application.
Here’s a longer explanation: Credit card companies ask for your income on card applications to decide how much of credit line to grant. Interestingly, they don’t require proof of this income; they just take your word for it. This is actually a rather sinister tactic. Why?
Credit card companies want to grant as much credit (especially to credit-worthy borrowers) as they can. That’s because the more debt cardholders rack up (and successfully pay off), the more the credit card companies earn.
If, however, somebody falsifies his or her income on a credit card application, receives a large credit line, maxes it out, and the credit card company has to sue the cardholder to collect the debt, the credit card company will use the annual income the borrower provided on the application as proof that the company lent a prudent amount to the debtor.
While credit card companies are far from innocent when it comes to deceiving customers about the terms of their loans, things are not going to go well in court for a debtor when it comes out that his or her annual income was inflated on the credit card application.
This is why credit card applications often have a line for alimony or other additional income. The application then says something like: “Include additional income only if you want it considered for the purposes of determining your ability to repay this debt.”
That said, you don’t have to be employed full-time at the moment you apply for credit in order to list your estimated annual income honestly by estimating what your income will be on your next tax return. Credit applications do, however, ask for your current employer and, sometimes, your previous employer. You can feel free to list self-employed or a temp agency. Although this shouldn’t affect applicants with good credit, applicants with less-than-ideal credit may have a harder time getting approved for new credit without being able to list a full-time job.