Accessible Income: What It Is and How It's Used
Accessible income includes everything that a person has "reasonable access" to. For many people, it doesn't just include the paychecks they get from their regular job. It can also consist of income sources, such as scholarships, an allowance, and Social Security payments.
Accessible income is only required for credit card applications, so age is really what determines the types a person has and what they count.
Typically, for anyone over 21 years old, accessible income can include these things:
A spouse's income
Earnings from side jobs
Earnings from rental properties
SSI Disability or Social Security payments
Financial gifts (nontaxable income)
Allowances from grandparents or parents
Scholarships and grants, as well as other financial aid
One of the biggest mistakes a person can make when they apply for a credit card is not to consider this amount. Typically, it's more than what they see come in a year, so it can open up more opportunities to get higher credit limits and better credit cards. That way, they can boost their credit scores and have more flexibility.
Why Is It Included on a Credit Card Application?
On a credit card application, this income declaration includes the person's total gross income, which is reasonably accessible to them if they're over 21 years old. This isn't the same as assessable income, which relates to the taxable income. Typically, assessable income is everything that a person puts in that can be taxed before all of the credits and tax deductions are taken out for that year's tax return. Therefore, accessible income is often higher than taxable income.
Don't get assessable income (related to taxes) mixed up with accessible income (relating to credit card applications).
The CARD Act
The CARD (Credit Card Accountability Responsibility and Disclosure) Act came out in 2009 through the Obama administration. This Act sets out the standards for accessible income. It did many things to help protect consumers from predatory bank tactics, such as hidden fees. However, the amendment in 2013 changed things based on what a person can use as stated income on their credit card application.
Its final rule ended up amending Regulation Z, which removed the requirement that an issuer had to consider the consumer's ability to pay for applicants. Instead, issuers could consider the assets and income that the consumer had reasonable access to. In the past, most credit card issuers only focused on gross income or taxable income.
With this rule, it's more about having reasonable access to the money instead of just what's listed on a person's adjusted gross income at the end of the tax year. This could mean different things for people, but here are some cases where a person might have a reasonable expectation to access money.
Deposit the income into joint accounts shared with the applicant
Deposit the income into accounts where the applicant doesn't have access but transfers income portions to their individual deposit account
Regularly uses part of the income to pay the applicant's expenses
Therefore, in some cases, it is possible for a younger person to claim part of their parent's income on their credit card application. This makes it easier for college students to get their first credit cards. With this, people can include their spouse's income on the credit card application, too. It boils down to if a person:
Has direct access to the account in which the money goes
Gets regular transfers to their account
Uses part of their income to pay for the applicant's expenses
If any of these are true, it is possible to put that income on the credit card application. It can be a little tricky to figure out when a person can use a portion or the full income. Still, it seems that if more income is deposited into the account for which the applicant has direct access or they regularly pay expenses, all of the non-applicant's salary can be reported as income.
However, if the non-applicant only transfers a portion of their salary into the applicant's account, only that portion should be included.
Credit card applications shouldn't ask the applicant to distinguish between the various types of income, either. Therefore, a person doesn't have to say that they receive a specific portion from their parents or spouse.
Other income sources can also be counted as income as listed above.
Does Income Matter for a Credit Card Application?
Most people believe that approval for a credit card is based on credit scores. While that is true to an extent, the credit history and score are only part of the equation. Some cards, such as premium ones, disqualify an applicant if they don't have a lot of adjusted gross income. When a person applies other types of income, adding them together, it creates a larger amount of gross income, whether it is taxable income or not.
Some institutions are more forgiving if there isn't a lot of taxable income available as long as the applicant has a high credit score or established credit history. Therefore, those strong factors can offset less accessible income, whether the income is taxable or not.
In most cases, the gross income affects the starting credit line. With a lower taxable income and few assets, a high credit limit is less likely. Over time, it is possible to raise that credit limit from paying the bill on time or bumping up the accessible or taxable income amounts.
Does the Bank Verify Income?
Most creditors don't verify a person's income. It's often impossible for a credit card issuer to verify much since there is taxable and nontaxable income, as well as accessible and adjusted gross income. They can request your tax returns for the last tax year, but they rarely do that. If that does happen, any unearned income (what wasn't claimed or what was accessible) may not show up. This can cause a snag when getting a credit card because the issuer might think that the applicant lied on the form.
Though it is possible to state a higher income than what is accessible or taxable income, that's not a good idea.
As mentioned earlier, some banks request tax forms from the previous tax year along with the application. It is harder to explain the stated income on the form with the tax documents. It isn't likely to help the odds of approval if the issuer finds out that the income was exaggerated, especially if the taxable income is less.
Credit card issuers are allowed to review a person's account. If that happens, the bank is sure to see what income has been reported and focus solely on taxable income. They request that the person verifies this and find out that fraud was committed. Ultimately, this can lower a person's credit limit, or the account can be shut down altogether. While it is not illegal to focus on accessible rather than taxable income, make sure that it is easily attainable or can be liquidated quickly. On top of that, companies can run a hard credit check to analyze credit history and more.
Another reason not to exaggerate the income too much is that a person can ask for more credit than they're able to handle. If the income was increased by three times the actual amount, a person could get a $10,000 credit limit. However, they may max out the card and be expected to pay all that off with interest over time.
Does Income Affect Credit Scores?
Income doesn't affect a person's credit score directly. However, there could be some indirect effects. If there is a high income, it's easy to pay off the bills and keep the credit card utilization ratio lower.
In fact, men tend to make more than women and have higher scores. However, women usually have less debt on average.
There isn't a direct way for a credit score to change if more than taxable income is included. However, it could affect a person's approval rate for other cards, which can change the score.
What Not to Include as Accessible?
The list shown earlier talks about all the accessible income options available, but there could be others. In most cases, a person should always include taxable income.
However, there are a few things that should not be included, such as:
Loans or any borrowed money
Other credit card spending limits
Assets that a person isn't going to have easy access to (IRA and other investment options)
Any money that a person might owe to anyone else
In the past, credit card applicants were primarily limited by their taxable income amounts. Taxable income includes bonuses, wages, salaries, and tips. Investment income and unearned income are also a part of that. However, people can now rely on accessible instead of taxable income only because of the CARD Act. That opens up many other doors.
However, it's a good idea to only include what the person actually has access to and not exaggerate. That way, they don't end up spending more than they can afford to pay back. Consider talking to an investment advisor for more information regarding taxable and accessible income or to discuss stock grants and default risk premiums.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Stratos Wealth Partners, LTD., a registered investment advisor. Stratos Wealth Partners, LRD. The Kelley Financial Group, LLC are separate entities from LPL Financial.
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