Consumer Law

Credit Card Companies Want to Know More about You

If you're shopping around for a new credit card, get ready to provide much more information than you ever had to before.

In the past, when you applied for a credit card you had to disclose some information, including your income. Credit card companies generally relied on your information as accurate and would issue you credit based on what you reported.

However, last year the government passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) which sets new limits and restrictions on credit card companies. As a result, card companies must act more responsibly and are requesting more detail in their applications.

If you apply for a credit card, you'll see you now need to report extra information such as:

  • How much you pay in mortgage or rent payments
  • How much money is in your bank
  • How much you have invested
  • Some companies are even requiring household income estimates

Also, companies are using new computer applications to verify what you report is accurate. You may also be required to fill out a form called Form 4506-T. This form allows the Internal Revenue Service (IRS) to pass on your tax information to these credit companies.

Why Does Your Income Matter?

Credit card companies use your income to help determine whether you can get a new credit card or a higher credit limit. In an attempt to be flexible, they're allowed to use a reasonable estimate of your income.

To help with this estimate, the three big credit bureaus are using new products estimating 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 bureaus say that using these products is needed as a response to banks' efforts to tighten credit standards to reduce their losses and risk.

How Does This Affect You?

Not just credit card companies, but all types of lenders are starting to collect more financial data about you and from you. In the past, mortgage lenders used your pay stubs and bank statements to determine how much you could borrow. Now, they can check your income by checking your income tax filings.

Why Don't the Credit Card Companies Simply Use Your Credit Score?

Your credit score, which was commonly used in the past to determine whether you get a credit card or loan is no longer enough. New credit card laws require credit card issuers to consider many more factors before allowing new accounts. They now need to consider a customer's ability to pay, and requiring you to disclose your income helps them make that decision.

What's the Problem?

Besides applicants, some credit card providers are worried about these new policies. For example, many stores provide their shoppers with revolving credit accounts. These retailers worry that shoppers won't be willing to disclose personal information when applying for their card, which typically happens at the store counter.

Also, the income estimates that these companies use may not always be accurate. Estimates can be off by $15,000 to $20,000. Because these numbers aren't exact, it may be unfair to turn down applicants based on that information.

Keep in Mind

If you find yourself with a more extensive credit card application, keep these tips in mind:

  • The income estimate is based on your credit report. Therefore, make sure that the information in your credit report is accurate; check your credit reports regularly
  • When you apply for a credit card, loan or mortgage, pay extra attention to what you're agreeing to. In the small print of some credit card applications, you must consent to having not just your credit checked, but your employment verified
  • If you are asked to fill out a Form 4506-T, make sure you limit the years the lender can request your tax returns by dating the form and filling in the year or years so you know exactly what information is disclosed

Keep in mind that all types of information are being gathered about you. Some smaller credit bureaus gather information on your utility payments, cable and cell phone bills.

This information can be used to provide credit scores. That means, ultimately, how you handle all your bills, and not just your mortgage and credit card, will affect your prospects.

Questions for Your Attorney

  • Can I refuse to allow my card company access to such personal information?
  • Is there a petition I can sign to have card companies stop collecting this information?
  • Will my current credit card companies ask for this information if I want a higher credit limit?
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