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You may think your income is private information. But the credit bureaus may have your number. And starting this month, your income—as estimated by the bureaus—may be used to help determine whether you get a new credit card.
One of the requirements of the Credit CARD Act of 2009 is that lenders must consider income as part of the lending decision. As a result, lenders are not only seeking more information, but also sources of information independent of the consumer, effective February 22, 2010.
The Federal Reserve issued its final rules related to last year's Credit Card Act, which, among other things, will require credit-card companies to consider an applicant's income or assets and current debts before approving credit.
To provide flexibility, however, the Fed said that issuers can use "a reasonable estimate" of income or assets based on "statistically sound models."
In hopes of such a decision, the three big credit bureaus have been updating or rolling out products that seek to estimate consumers' incomes, based on information in their credit reports, such as the size and age of their mortgages or the size of their credit limits.
Credit scores, which have been long a key factor in whether you get a loan or a credit card, may not be sufficient for many future credit decisions. With the new credit-card law requiring credit-card issuers to consider a customer's ability to pay before opening new accounts, the Fed had proposed requiring people to report their own income or assets when applying for credit.
But retailers feared the proposed rules would squelch their ability to instantly open credit accounts at the cash register because shoppers would not want to disclose such personal information in the middle of a store.
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Both retailers and the credit bureaus asked the Fed to allow them use alternatives such as the credit bureaus' income estimations instead. Card companies already are asking for more detailed information in their online applications.
Income estimates also may be used to decide whether to increase a credit limit, since information on credit-card accounts may not be available or up-to-date. In addition, collection agencies have been interested in using the data to determine the most profitable accounts to pursue.
If all this additional information makes you queasy, here are a few things to keep in mind. Since the income estimates are based on information in your credit report, it is more important than ever to make sure the debt data in your report are accurate. Check your three reports at least once a year, or check one bureau's report every four months.
When you apply for a credit card, a loan or a mortgage, pay attention to what you are consenting to. In addition, if you are asked to fill out a Form 4506-T, be sure to date the form and to fill in the year or years for which the lender can request returns so you know exactly what information will be made available.
Be aware that all kinds of information is being collected about you. Less well-known credit bureaus collect data on utility payments, cable and cellphone bills, payday loans, bank accounts and more, and the data can be used to provide credit scores on those with little or no traditional credit.
Ultimately, how you handle all your bills—not just your mortgage and credit card—can make a difference in your options.
From the Wall Street Journal Online,
Karen Blumenthal, Author
Janine B. Rywak
County Extension Director
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