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Pros, cons of providing income updates to card issuers

Pros, cons of providing income updates to card issuers

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This article was last updated Jan 15, 2019, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

If you’ve received an email or letter in the mail from your card issuer requesting an income update, you may wonder if it’s worthwhile to share that information.

It’s OK to be hesitant to update your income — you’re under no obligation to comply. However, you could find yourself granted with a higher credit limit if your income has increased. What you probably don’t want to do is update your income if it has decreased as that could make you appear to be a higher-risk customer, leading to a possible credit line decrease or even account closure. Issuers do have a legal obligation under the Credit Card Act of 2009 to verify that your income is sufficient to cover your debts, which is why you may be asked to provide an update, but there is no law that actually requires you to do so.

“The ball’s in your court as to whether you want your card issuer to know your updated salary,” said CompareCards.com Chief Industry Analyst Matt Schulz. “Just know that if you don’t do it, you might end up throwing away your chance to get that credit limit increase that you want, if your salary has gone up substantially.”

If you do decide to report an increase in income, be honest about it. You don’t want to respond with an inflated or false income as that could constitute fraud, and perhaps completely backfire on you if you were ever to have to file for bankruptcy. But if you’re new to credit and were given a small credit limit initially with your first card, updating your income as your salary rises is a great way to boost your available credit on your existing card. A bigger credit line could allow you to finance a large purchase, such as an appliance or car repair, over several months, for example.

We’ll review the pros and cons of providing income updates to card issuers below.

Pros

Increased buying power. When you provide an increased income update to your card issuer, you may receive a higher credit limit. This can expand your buying power, allowing you to charge larger purchases you may not have been able to before. If your issuer hasn’t requested an income update, but you want a higher credit limit, you can initiate a credit limit increase request.

Lower credit utilization. The total debt you carry on credit cards compared to your credit limit is known as credit utilization, and makes up 30% of your credit score. The higher your utilization, the lower your credit score. It’s key to maintain card balances low, preferably below 30% of your credit limit. If you receive a higher credit limit after updating your income, you lower the risk of having a high credit utilization.

For example, say you spend $500 a month on a credit card with a $1,000 credit limit. That makes your utilization high at 50%. If your card issuer increased your credit limit to $2,000 after you provided an income update and you maintain the same $500 spending, your utilization would drop to 25%.

No direct effect on your credit. A common misconception is that income impacts your credit score, but it doesn’t. However, if you provide an income update, your credit score shouldn’t be affected unless the card issuer does a hard pull of your credit report. Prior to requesting a credit limit increase and initiating an income update, you should verify whether a credit report will be pulled or not.

Receive better targeted offers. When you provide an income update, that allows your card issuer and third parties to tailor offers for credit products such as credit cards, loans and wealth management services, to you.

Cons

More credit can lead to more debt. If you have a problem with impulse spending on your card, you’re probably better off keeping card limits low and not provide income updates when requested. You may be tempted to overspend with a higher credit limit, which can lead to debt.

Bottom line

There are many benefits of providing an income update to your card issuer, particularly if your income has increased. You may receive a higher credit limit, potentially improving your credit score and you will receive more targeted offers for alternative credit products. If you don’t want your issuer to know you make more or less money, simply ignore the requests. There’s no requirement to provide income updates, but there are advantages and disadvantages in doing so.


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