Does Income Affect Credit Score?

Think of your financial health like your physical health: several smaller parts that make up a larger whole. Income and credit are two distinct parts that affect each other indirectly. Your income isn’t included in your credit report, so it isn’t calculated into your credit score. However, the higher your income, the more power you should have to pay down your debts.

Whatever your goals are, understanding the whole picture will help when you're ready to take the next step on your financial path. Read on to learn more about how income affects credit scores as well as loan decisions.

How does income affect your credit score?

Your income doesn’t affect your credit score directly. It doesn’t show up on your credit report, so it doesn’t play a role in the credit scoring models that calculate your score. That said, your income can indirectly affect your credit score through factors like credit utilization and payment history. An excellent credit score is possible no matter how much money you make. Here are a couple ways you can use your income to help benefit your credit score:

• Keep your credit utilization low. Credit utilization is the amount of your available credit that you’ve used. The percentage of available credit you use can be a signal of how you manage finances. Try to carry the smallest balances possible on all your credit cards and loans to keep that percentage down, preferably at 30% or below. As your salary grows, you may be eligible for a higher credit limit. Make sure to regularly update your salary information with your lender. Higher credit limits and lower balances are the secret to good credit utilization ratios.

• Get the best interest rates. If your credit score is higher than it was when you applied for a line of credit, you may be paying a higher interest rate than necessary. As your salary, credit score and overall financial health improves over time, work with lenders to make sure you’re getting the best interest rates you qualify for.

Do lenders look at your income?

Even though credit reporting bureaus aren’t aware of your income, most lenders are. They often look at things like salary or other sources of income, as well as account balances and investments when deciding on loan offers. Your debt-to-income ratio (DTI) can also be a factor in your approval odds. It compares your monthly debt payments to monthly income. Things like rent, mortgage, credit card payments, other loans and utility payments make up your monthly “debt” payments. Try calculating your DTI yourself to get a feel for what lenders are looking at.

What impacts your credit score?

While your income can be an important factor in your financial success, it doesn’t show up on your credit report. Credit scores reflect only your credit history and may not capture your overall financial health. Here’s what is typically on a credit report:

• Payment history. Paying your bills on time helps build your credit score.

• Credit utilization ratio. Most financial experts suggest a rate below 30–40% positively influences your credit score.¹

• Length of credit. The longer you’ve been in good standing with your credit accounts, the better for your credit score.

• Credit mix. Managing a variety of credit accounts helps your credit score. It shows you’re able to handle multiple types of credit. For example, having a mortgage, car loan and credit card on your report will generally look better than multiple credit cards.

• Hard inquiries. This is a financial industry term that refers to lenders inquiring about your credit report when you apply for credit. If the number of inquiries is high, it could negatively impact your credit score. However, the significance of these inquiries fades over time. Many lenders like OneMain let you check for prequalified loan offers (called a “soft inquiry” or “soft pull”) without any impact to your credit.

A solid income is just the start

Steady income is an important part of financial success, but it’s just the beginning. Learning how to use your hard-earned money is key to reaching your goals. Continue learning about money management with subjects like how to stick to a budget, plan for retirement and pay off credit card debt. When it comes to financial health, knowing your stuff pays off big.

1. What Affects Your Credit Score - Investopedia." https://www.investopedia.com/ask/answers/040715/how-does-your-checking-account-affect-your-credit-score.asp. Accessed 3 Jun. 2022.