10 Myths About Credit: Myth #7 (Income)

Myth #7: My income (how much I make) affects my credit score.

Reality: The credit bureaus don’t care how much you make, only your ability to repay back the credit that was extended to you. This information is reported to them by your lenders. Actually, your income is not even reported on your credit report just other employer information like company name and address.
Your income has no bearing on your credit score. I know people that make a 6 figure income and have terrible credit and others that make less than $35k a year and have exceptionally good credit.

Of course lenders care how much you make when applying for credit, and they determine your ability to service this credit using financial ratios and other information when you do a credit application. But once they start reporting to Equifax & TransUnion about your monthly credit activity, the credit bureaus don’t use income to determine creditworthiness.

I think this is fair because the credit score/report does not discriminate based on income, only how well one manages their credit.

Solution: Have a budget in place and live below your mean. Always make sure you try and pay off the balance of your credit cards at the end of each month and don’t take out more credit than you need.

Make sure you have an emergency fund in place in the event of a job loss or a reduction in income, to cover minimum payments on your debts. Some people may decide to use a line of credit as their emergency fund when money is tight (i.e. job loss or maternity leave), but this can lead to serious financial difficulties in the future and possibly tarnish their credit score in the process. If you are spending more with credit than your income is able to pay back in addition to meeting other living expenses, at some point your credit will be affected.

I am a big advocate of having an emergency fund. It’s a great extension of income during tough times. Having said that however, I live well below my means & have only the credit extended that I need. I pay off my debts in full at the end of each month. Having an emergency fund & no outstanding debts gives me peace of mind and sense of control over my finances.

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5 replies

  1. I really like this disciplined and tailored personal funds management. Keeps you sane.


  2. Great advice, young lady!


  3. A lot of people believe income matters. You are so right that it is all about how we handle what we make that matters. I had people tell me that my credit rating would drop if I paid off my house. I only charge what I normally need for the month and pay it off in full with each statement. My credit rating has never been better even with a paid off home. I agree with you in only having as much credit as I would need. I always use my reward credit card so they pay me for using it but I haven’t jumped on the rewards card travel and credit hack bandwagon even though I have read impressive results. I guess I just like to keep things simple. At least at this time.


    • Wow. Congratulations on paying off your home!!! That is so amazing. My husband and I want to buy a house but the property values here in Calgary is way overpriced for what you get. Good on you for paying off you credit cards in full as well. I have been thinking of switching credit cards for the points. Currently I have a credit card at 4.20% with no points or cash back but pay off my card each month so I don’t really benefit from the low rate. But it gives me piece of mind in the event I can’t pay right away.