In a Nutshell
Your income is not a factor used to calculate your credit scores, and it does not appear on your credit reports. However, your income can indirectly influence your credit health and will typically factor into a lender’s decision on whether to extend you credit.While your income is a vital piece of your overall financial life, it has no direct impact on your credit scores.
Credit-scoring models, such as those from FICO and VantageScore, only use information found in your credit reports to calculate your scores. And since your salary or hourly wages are not reported to the credit bureaus, they cannot affect the math.
Keep in mind that you can check your free VantageScore 3.0 credit scores and reports from two of the three main credit bureaus — TransUnion and Equifax — anytime on Credit Karma.
Although income doesn’t affect your scores, lenders often look at your income separately to evaluate your ability to repay what you borrow. Understanding how income and credit interact can help you better navigate the lending process and manage your financial health.
- Does your income affect your credit scores?
- What factors make up credit scores?
- How your income may indirectly affect credit health
- How does my income affect my credit limit?
- FAQs about credit score factors
Does your income affect your credit scores?
Your income doesn’t have a direct impact on your credit scores.
When you review your credit reports from the three main credit bureaus — Equifax, Experian and TransUnion — you’ll see that there’s no mention of your specific salary or total annual income. Instead, your credit reports focus on your history of managing borrowed money.
Because your credit scores are calculated based on information in your credit reports, scoring models cannot use income as part of their calculations.
What factors make up credit scores?
FICO and VantageScore both consider the same main factors to generate your credit scores. Here’s how those credit score factors break down for a VantageScore 3.0 credit score:
- Payment history (40%): This tracks whether you have made your payments on time.
- Depth of credit history (21%): This considers the age of your oldest and newest accounts, the average age of all of your accounts and the types of credit accounts you use as well as the different types of credit you’ve used.
- Credit utilization (20%): This measures how much of your available credit you are currently using compared to your total credit limits.
- Balances (11%): This looks at balances across all of your current and delinquent accounts.
- Recent credit activity (5%): This looks at how many new accounts you have recently opened or applied for.
- Available credit (3%): This considers your available credit on revolving accounts like credit cards.
Even though income isn’t one of these factors, it can still have a significant indirect effect on how lenders review your credit health.
How your income may indirectly affect credit health
While your income won’t affect your credit scores, it may still factor into a lender’s decision on whether to offer you a loan. There’s no set income amount that always guarantees credit approval, however, and even a high earner can be denied a credit product.
Here are a few reasons your income may still affect your credit health:
Your debt-to-income ratio is important to lenders
Lenders often look at your debt-to-income ratio (DTI) to see if you earn enough to cover your current debts plus any new payments. Your DTI is calculated by dividing your total monthly debt payments by your gross monthly income.
A high DTI could lead a lender to deny your application even if you have excellent credit.
Your income affects your ability to pay bills
Your income directly affects your ability to make on-time payments. Payment history is the most important factor in your credit scores, so any drop in income that leads to a missed or late payment can cause your scores to drop significantly.
Steady income may be favorable to some lenders
In addition to your credit history, lenders may look at your employment history and proof of income to determine the risk of lending to you. If you have a steady income, lenders may consider you less of a credit risk and be more likely to approve you for a loan or a credit card with more favorable terms.
How does my income affect my credit limit?
When you apply for a credit card, the issuer asks for your annual income to determine how much credit they are willing to extend to you based on your ability to pay. What counts as income may include …
- Salary
- Hourly wages
- Investment income
- Workers’ compensation or disability payments
- Alimony or child support payments
- Retirement payments
- Public assistance
A higher income often leads to a higher credit limit, which can help improve your credit utilization — the amount of credit you’re using compared to your total limits. Financial experts often recommend keeping your credit utilization rate below 30% to maintain healthy scores.
For example, if you spend $4,000 a month on a card with a $10,000 limit, your utilization is 40%, which is higher than the recommended threshold. However, if a higher income helps you qualify for a $20,000 credit limit, that same $4,000 spend results in only 20% utilization.
This lower percentage can have a positive impact on your credit scores without you changing your spending habits.
What’s next?
Improving your financial health is a journey that involves both managing your credit and your income. If you’re looking for a place to start, focus on sticking to a monthly budget that prioritizes on-time payments and reducing your overall debt balances.
If you’re looking to land better rates, increasing your earning potential or cutting back on expenses can help lower your debt-to-income ratio, making you more attractive to lenders.
One way to stay on top of your progress is by monitoring your credit regularly. Credit Karma offers free credit monitoring, which can alert you to key changes on your TransUnion and Equifax credit reports, as well as free credit reports and VantageScore 3.0 credit scores.
Credit monitoring allows you to stay informed about what’s affecting your credit scores and helps you spot potential errors. If you find inaccurate information on your reports, such as an account that doesn’t belong to you or an incorrect balance, you should dispute it with the relevant credit bureau immediately.
Looking to build your credit? Consider a credit builder loan.
Taking out a credit builder loan can help you build your credit by giving you the opportunity to show you can make regular on-time payments, which is an important part of your credit scores.
When you get a credit builder loan, the lender typically sets aside the loan amount you want to borrow into a reserve account it controls. You then make regular payments toward the loan, building a positive payment history that’s reported to the credit bureaus. When the loan is paid off (or you reach a certain threshold), the lender gives you access to the funds.
Loan fees, interest and repayment terms vary among lenders, so you’ll want to compare your options before applying.
You might also want to consider Credit Karma’s Credit Builder plan, which can help you build low credit while you save.
FAQs about credit score factors
Credit scores are calculated based on the data in your credit reports, including such factors as your payment history and your credit utilization (the amount of debt you owe compared to your limits). Other factors include how long you’ve had credit accounts, your mix of different types of credit and your recent applications for new credit.
Your credit report contains a record of your history with borrowed money. This includes identifying information like your name and address, details on your credit accounts (such as balances and payment status) and public records like bankruptcies. It also lists “hard inquiries,” which occur when you apply for new credit.
Your credit report focuses on your debt history rather than your income or identity. Information such as your salary, hourly wages and total net worth does not appear on your credit reports. It also excludes personal demographics like your race, religion, political affiliation and marital status. Medical history is not included unless it results in specific types of collection debt.