Does Updating Income Information Improve Your Credit Score?
What could you do with a sky-high credit line? I mean, what couldn’t you do? If you’ve seen your credit card issuer offer to update your income to see if you’re eligible for a higher credit limit, you might wonder if it’s worth providing that personal information. This is not a trap, I promise.
When you apply for a new credit card, you must include your annual income. Credit card issuers are required by law to do this in order to be relatively confident that you can pay your bill before they provide you with a line of credit.
But this confirmation of income may appear again later, long after you start using the card. You can sign in to your account or receive an email inviting you to renew your income, usually with a promise: “You may be eligible for an increase in your credit limit!”
If your income has really increased since you opened your credit card and you have a lot of control over your spending, you should go ahead and update your income. An increased credit limit can actually increase your credit score.
This is because about 30% of your credit score is based on your use of your credit : how much of your available credit you are using. Since issuers only report your statistics to the credit bureaus once a month, it doesn’t matter if you put all your bills on the card and then pay them before interest starts to accrue. Usage refers to your revolving balance – an amount that you do not pay out immediately. The lower the utilization rate (try not to exceed 10%), the higher your score will be.
Of course, there is something in that for the credit card company. If your card issuer increases your credit limit, they can increase the likelihood that you will spend more than your credit limit, thereby making them more money from interest on your revolving balance. It is cheaper for a card issuer to support you as a happy and wasteful customer than it is to attract and acquire new ones. But in order to hang a carrot with a credit line in front of you, they need to update your income to prove that you can probably pay your bill.
To increase your credit limit, you not only need to have more income, but also have a good payment history. And if you regularly approach your credit limit, you probably won’t even see any of these offers. You must already have good credit to be eligible for an even higher score.