Income doesn't matter to FICO!

[Eric_E]

Income isn't factored into the loan at this point. In other words, the FICO tells you whether to lend, and at what rate, but not what or how much to lend. That's what the income tells you. If you have a person who reports $10k in income with a credit score of 800, you may readily lend to them at low interest rates, but only small amounts commensurate with their income (say $500). A millionaire with a 500 FICO you may not lend anything to at all, or only at high interest rates.

This is just my intuition though, not based on actual case studies. The point is that the FICO score can't tell a lender how much to lend in dollars (otherwise poor people with good money management skills could borrow huge sums of money). Only the income can tell you that.

[Anonymous]

I think you could say income has an indirect bearing on your FICO score when you are first starting your credit history (no previous credit history).

When you apply for a credit card for the very first time, you have no credit history so they need something else to determine your initial line of credit: your annual income.  It's the debt to credit ratio that has an impact on your FICO score.  So logically if you have a higher income, it won't impact your FICO score directly but it may impact your initial credit line and therefore your debt to credit ratio which does directly impact your FICO score.

i.e. If there are two fresh credit applicants with no previous credit history whatsoever.  (this is just an example; this is not to say a person with such income will necessarily have these exact figures.)

Person A

$50,000/year

Bank gives Initial credit line of: $5,000

Person B
$25,000/year

Bank gives Initial credit line of: $2,500

Let's say person A & B both spend $1000.

Person A's debt to credit ratio = 1/5 = 20%

Person B's debt to credit ratio = 2/5 = 40%

That means person B has double the debt to credit ratio that person A does... and person B's debt is nearly half of his alotted credit!  That does affect FICO score.

Of course, this can all change depending on how well person A & B pay back their debt.  If person B has a higher debt ratio but pays back diligently while person A has a lower debt ratio but misses payments and is inconsistent, person B will get a credit line increase quickly so beyond that it's anyone's game so I think arguably your income indirectly impacts your FICO score initially but has less and less impact on your credit score as it builds since how much you make really has no bearing on willingness and diligence in repayment.

[Anonymous]

Income doesn't count for FICO but it most surely count with the lenders. Try buying a BMW with an income of $1000.00 a month.

[Anonymous]

I'll bet it is because income is not information FICO can reliably gather. They rely on data gathered through credit reporting agencies, which in turn rely on data supplied by creditors through their experiences with borrwers. Income is almost always self reported (on applications) and not verified by the credit reporting agencies. If they could reliably gather it, and if it did prove to be predictive (that's the other if) I am sure they would use it.

[Anonymous]

It bears repeating that income has no bearing on your FICO score because income in NO WAY predicts whether you are predisposed to pay back ANY debt.

Person A makes $40K a year and applies for a $100K mortgage.

Person B makes $65K a year and applies for a $400K mortgage.

Who is the bigger risk? Well, I would think most agree that Person B is a greater risk FOR THIS SPECIFIC SCENARIO!

But FICO scores aren't scenario based. They are a view of one's credit from well above the treetops. It is the job of a lender to take the FICO score, among other things, and assess the specific scenario. A lender doesn't just look at the FICO score and say approved or not. They assess the debt itself, income, etc. and determine whether they the lender are likely to make or loose money on this specific transaction.

FICO scores are a high level assessment of risk for a broad spectrum of scenarios--auto, home, bank loan, bank card.

The granting or denying of a specific loan is a very detailed and more thorough assessment of risk for a specific scenario.

[haulingthescoreup]

If FICO were analyzing income and factoring it into credit scores, it would essentially have the total decision-making power as to whether any of us got a loan. There would be nothing left for the lender to do but shove the contract toward you to sign or hustle you out the door. And since FICO gets its data from the credit reporting agencies, it would also mean that the CRA's would now be in charge of reporting our checking and savings account activity. With as many screw-ups as we find on our reports, do we actually want that to happen?

While some things do seem to be entirely score-driven (sub-prime cards, for example), other loans involve more involvement by humans whom you meet with, or at least speak with on the phone. I would much rather have my FICO scores being only one of the factors looked at in this process. Let me bring in my own pay stubs and bank records and 1040's and have the chance to do some 'splaining. I don't need some faceless credit bureau drone, feeling a little hung-over and brooding over an argument with a Significant Other, to be able to do the entire thumbs-up, thumbs-down process.

[Anonymous]

FICO is only one measure of a person's financial stability... financial institutions always ask your income from you and usually verify that through a credit report or by calling your employer (which is totally annoying to you and free to them).  Also, they look at your monthly obligations (installment loans which have fewer than 10 payments less don't usually count against you). Then they use the two to come up with the amount they are willing to lend you.  Go to a web site with a mortgage calculator and play with the numbers... you will see a place to put in your total monthly payments to creditors, your monthly income, and likely an estimate of your credit score... so, really, the credit score can only work against you... if your score is less than ### (known only by that lender) then they will either deny your application, or increase your interest rate, and/or reduce the amount that they are willing to lend you.  Bottom line, FICO is not a one stop shop for mortgages or car loans...

[Anonymous]

Are you a rapper? I'm not. How do you know they ALL have terrible income? That's not a smart thing to say

[haulingthescoreup]

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@Anonymous wrote:
Are you a rapper? I'm not. How do you know they ALL have terrible income? That's not a smart thing to say

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Wait, what?

OK, I remember now, this is a pretty old string. Messages 6-10, 13-15. I think people were trying to come up with extreme examples of how high income doesn't necessarily mean that one is credit-worthy, and this particular example got shot down.

[Anonymous]

Since the rapper thing seems to be offending some, how about Willie Nelson, Redd Foxx, Burt Reynolds, Kim Basinger, Gary Coleman, Mike Tyson, Debbie Reynolds, Toni Braxton and Don Johnson.

"Survivor" Season One $1 million winner Richard Hatch is currently incarcerated at Morgantown for income tax evasion. Duh moment--he never reported the $1 million winnings from a television show where for a while he was the biggest news of 2000. There was other income also not reported. Guy in no way appeared to be stupid or clueless. This was an intentional act, IMHO.