Does My Income Impact My Credit Score

Anne C. writes:

Michele,

I was told by someone that a significant increase in income would improve my credit score. I always thought credit scores were based more on payment history and outstanding monies owed. Is a person’s income figured into their credit score?

Michele: Anne, thanks for the question. Your instinct was correct. Income plays no role whatsoever in calculating someone’s credit score. This is a pretty common misconception. I have encountered many individuals making well over 6 figures annually, who believe that their income will overshadow any tardiness they have in paying their bills on time. It is just not the case.

If you obtain a free copy of your credit report from one of the major credit reporting agencies, you will see that nowhere on the report does your income appear.

Now, lenders do factor in your income when determining your ability to pay back a loan they may extend you. They will usually use a debt-to-income ratio. They take your monthly income and compare it to your monthly debt payments that appear on your credit report as well as a few that do not appear on a credit report like annual property and school taxes. They also add in the potential new payment from their loan to determine whether or not you will have the financial means to pay back the loan. This debt-to-income ratio may be where the misconception has originated from.