Why is your credit limit determined by income instead of networth?

[Anonymous]

Applications ask for your income, not your net worth. If that were the criteria, most people would be turned down because most working class have a negative net worth. They're in debt for a mortgage, a car, credit cards, student loans, etc. Most people can't touch their assets until they are ready to retire, because of pension and 401k rules. The average Joe just doesn't have a few million laying around. A bank sees zero income as being unable to service the debt and will decline with a quickness.

[Anonymous]

This is an interesting question, and the lack of immediately provable answers(barring someone actually taking the time to look up some of the things banks count as income) should provide for interesting discussion. 

Different banks have different definitions of income, or so I've seen it said on here before.  

I've also seen apps(i forget which) which ask about your assets with 2 dropdown menus with amounts in bank accounts, retirement accounts, or what not.  

Although it wouldn't provide the full spectrum, if someone is interested enough in this, I have a solution folks could test with nothing to lose: the shopping cart trick.  

[NRB525]

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@Anonymous wrote:

Applications ask for your income, not your net worth. If that were the criteria, most people would be turned down because most working class have a negative net worth. They're in debt for a mortgage, a car, credit cards, student loans, etc. Most people can't touch their assets until they are ready to retire, because of pension and 401k rules. The average Joe just doesn't have a few million laying around. A bank sees zero income as being unable to service the debt and will decline with a quickness.

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AMEX asks for Net Worth / Available Financial Resources estimates:

[Anonymous]

**generally** companies care about income versus networth not just because it's subjective as some have mentioned and also because it can be locked and not liquid...

But when they extend a credit line it's a revolving one. It's not like a loan where you get x amount and x amount only with y as the collateral in case z happens.

They want to see that you have a steady income coming in to replenish the coffer

Let's not say 5mm but let's be more realistic at 1mm in cash, not stocks-bonds-ira-etc

How much do you spend in a year? And I mean everything--your mortgage/rent, the bills (utilities, garbage, etc), food and clothing + transportation.

You will run out of money in a few years guarantee, if you don't have a replenishing source of income.

Credit card companies recognize that so often they also ask how long you've worked at xyz. How long have you lived in abc. They ask Qs that will statistically help them determine the % of risk you pose and at what number is safe for them to extend credit to you to make sure you not only keep making them $$ but not lose money in defaulting.

I hope that makes sense...

[Anonymous]

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@NRB525 wrote:

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@Anonymous wrote:

Applications ask for your income, not your net worth. If that were the criteria, most people would be turned down because most working class have a negative net worth. They're in debt for a mortgage, a car, credit cards, student loans, etc. Most people can't touch their assets until they are ready to retire, because of pension and 401k rules. The average Joe just doesn't have a few million laying around. A bank sees zero income as being unable to service the debt and will decline with a quickness.

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AMEX asks for Net Worth / Available Financial Resources estimates:

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Not the basis for approval. I've seen those kinds of questions before and I always go low. I still think they are looking at monthly and annual income.

[takeshi74]

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@techcrium wrote:

Isn't that flawed?

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No, the scenario and assumptions are flawed.

[Anonymous]

JPM Palladium's invitation/approval is based on how much money do you have with them. You can ask for a special consideration for the Freedom if you have at least $10k with Chase. Similar for Amex's Centurion, based on how much you use your Platinum card.

I'd go on a limb here and say it's similar for Discover, Citi, BoA and whatnot. Put $1mil there and they will give you a CC. On the other end of the spectrum, give Capital One $300 and they will give you a secured card.

So, with $5 mil you can get plenty of credit cards. There will problably be other lenders that will not give you one unless you report an income. But, do you really expect all of the CCC's algorithm to be flawless? Heck, none of them are. If they're flawless they won't have losses. So it's okay for CCC as long as they make money. And they make good money.

[designated_knitter]

Never mind the fact that if you have a net worth of 5 million dollars, you would be an idiot to use traditional credit since it always costs more than you will make leaving your investments in tact.

[Thomas_Thumb]

Nowhere Man

https://www.youtube.com/watch?v=2YfQIJo295M

[iv]

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@Anonymous wrote:

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@NRB525 wrote:

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@Anonymous wrote:

Applications ask for your income, not your net worth. If that were the criteria, most people would be turned down because most working class have a negative net worth. They're in debt for a mortgage, a car, credit cards, student loans, etc. Most people can't touch their assets until they are ready to retire, because of pension and 401k rules. The average Joe just doesn't have a few million laying around. A bank sees zero income as being unable to service the debt and will decline with a quickness.

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AMEX asks for Net Worth / Available Financial Resources estimates:

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Not the basis for approval. I've seen those kinds of questions before and I always go low. I still think they are looking at monthly and annual income.

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Well, amusingly enough, I just got an annual "please update your income and assets" message from Amex...

Take a look at the FAQ that they attach, specifically items #8 and #12:

Shouldn't you already have my income since I'm an existing Card Member?
While we often have our Card Members' income information on file, we recommended that you update your account information on a regular basis. Additionally, if you would like us to consider you for a credit line increase in the future, we will need you to provide your most updated account information.

What do you need my income for?
It may help us to consider you for a credit line increase.

Why do you need my income to consider me for a line increase?
Federal regulation requires us to obtain updated income information from you in order to assess your overall level of debt relative to your financial resources (or demonstrated Ability To Pay).

Will you report this information to a credit bureau?
We do not report income to the credit bureaus.

Will you perform a credit check?
No. We will not perform a credit check when you provide your income.

Could providing you my income negatively impact my account?
No. Providing your income will not negatively impact your account.

Do I have to provide my income?
No. You don't have to provide this information if you would prefer not to. However, we always encourage our customers to keep their account information up to date so we can provide better service.

I don't have an annual income.
That's fine. You can provide us with the value of your financial assets including savings accounts, checking accounts, retirement accounts and other investments (stocks, bonds, brokerage accounts, etc).

If my income has gone down, will this affect my account?
No. A lower income would not be used to decrease your credit line or otherwise change terms for your account.

What federal regulation requires you to ask for this information?
The Credit Card Act of 2009 requires us to collect financial information from you when reviewing your account to see if you're eligible for a credit line increase. This information allows us to assess your ability to pay.

How often do you need to update this information?
We need to update it annually if you want us to periodically review your account for a line increase.

What do you mean by available income?
Income includes wages, retirement, investments, rental properties, etc. Alimony, child support, or separate maintenance need not be revealed if you do not wish to rely upon them.