Even though the banks that issue credit cards and loans consider your income when they qualify your application, how much you make isnít a factor that influences your credit score. In fact, your income isnít even listed on your credit report (your current employer is listed, but that doesnít affect your credit score either). Credit scoring calculations donít use your income to determine your creditworthiness, but your salary and wages can still have an impact on your credit score.
Payment history, for example, is the most important factor influencing your credit score. Paying your bills on time will help your credit score and late payments can leave your score in shambles. Of course, your income has a big impact on whether you can afford to pay your bills. If you donít make enough money to cover all your monthly expenses, you might get behind on payments leading to late payments, collections, or worse, repossession, foreclosure, or bankruptcy.
The amount of debt you have is another major factor in your credit score. Having a good income can allow you to reduce your debt, therefore improving your credit score. If your income isnít enough to pay down your debt, your credit score may remain stagnant. Or, if youíre relying on debt because you canít afford to pay your bills, your credit score may drop.
Having various types of accounts Ė both installment loans and credit cards Ė can help boost your credit score. Mix of credit is just 10% of your score, but it can still make a difference. Having a mortgage on your credit report can add points to your credit score. But to qualify for a mortgage, you need to have a certain income.
Traditional credit scores donít include your income, but banks may have their own in-house scoring methods that do use your income, among other factors the bank considers. These scores arenít available to the public and your bank may not even disclose the score if you ask. Your income is necessary for the bank to decide what size loan you can afford to repay.
Of course, these arenít hard rules. There are people with little income who pay all their bills on time and people with large incomes who habitually pay late. Itís all about how you handle the income you have. Make your required expenses a priority, especially those regularly reported to the credit bureaus. Know the factors that influence your credit score Ė payment history, amount of debt, age of credit history, types of accounts, and recent applications. Keep these in mind with each financial decision you make.