How do you answer credit card application questions such as monthly spending, housing payment, annual income, and total available assets?
These seemingly straightforward requests can have hidden wrinkles that make it challenging to provide the correct response.
It is always best to provide honest, accurate answers. The truth will come out if the bank reviews your credit card application to verify your answers before making a final decision.
The information you provide supplements data obtained from your consumer report. Your answer can make or break getting approved – and, most importantly – being able to manage the new account responsibly.
Monthly Housing Payment
Many people are confused about what to put for their monthly housing payment when completing a credit card application. You are not alone if you need clarification on this question.
Banks ask the “rent, own, or other” and related questions to estimate your free cash flow – the amount of your net income left over after paying fixed expenses. Approvals have more, while denials tend to have less.
Meaning
If you completely understand the definition of a monthly housing payment, you will be better prepared to input the correct information on your credit card application.
The monthly housing payment means the fixed costs you incur each period to live in your principal residence, which you might rent or own.
- The monthly rent you pay to live in an apartment per the lease agreement
- The monthly mortgage, insurance, and property taxes paid by homeowners
Issuing banks recognize that borrowers will prioritize their fixed monthly housing payments over their unsecured credit card obligations during financial hardship. People fear homelessness more than wage garnishment and will default on unsecured obligations before a mortgage or apartment lease.
Split Rent
Tenants who share an apartment with roommates should report the split rent as their monthly housing payment answer. Credit card applications ask about your fixed expenses, not the other people’s obligations in your rental unit.
Most property managers and apartment leases hold the roommate personally accountable for their share of the monthly rental payment. It is common for landlords to pull a consumer report for each co-tenant and then require co-signers (from parents) when needed.
Rental security deposit loans operate under similar underwriting principles.
Include Utilities
Consumers do not need to include utilities in their monthly housing payment response because credit card applications do not ask about variable expenses. The amount allocated to pay the gas, electric, and water bills fluctuates monthly.
Plus, changes in the weather and your choices can have a profound effect.
- Lowering the thermostat in the winter and adding insulation can save on natural gas and heating oil bills.
- Opening windows and closing blinds in the summer instead of running the air conditioner cuts the electric bill, as does turning off lights, televisions, computers, etc.
- Taking shorter showers and turning off the automatic lawn sprinklers can lower your water bill.
Live With Parents
If you live with your parents, you should put rent or other rather than own on your credit card application. The monthly housing payment should reflect what your parents charge you to reside in their basement or your old bedroom.
- Rent: your parents charge a monthly fee to offset their living expenses
- Own: your name appears on the property title and mortgage contract with your parents (rare)
- Other: your parents do not charge anything to help you save money
Annual Income Answer
Most people should include their annual net income on their credit card applications, which represents their gross earnings minus deductions for taxes, health insurance, and retirement savings.
In other words, the credit card companies want to see how much money is available to pay them at the end of each billing period. Therefore, you should include every possible source.
- Wages from employment include salary, commissions, bonuses, tips, etc.
- Alimony, child support, and other court-ordered payments
- Social Security retirement benefits
- Social Security disability benefits
- Structured settlements from lawsuits or insurance policies
- Interest income from investments, trust funds, and savings
College Student
The answer to what to put for income on credit card applications for college students is more complicated. Therefore, pay close attention to avoid problems in the future – when the bill comes due.
First, student loans do not count as income. Loans are debts you must repay, and they appear on your consumer report. However, you can report any excess funding borrowed to pay living expenses as an asset, albeit temporarily.
Second, the portion of student financial aid that does not cover coursework (tuition, textbooks, and fees) counts as income. You can include support such as stipends and money earned by working.
Third, students can include “accessible income,” which has different rules based on age.
- Under 21: Allowance regularly deposited into a bank account in your name
- Over 21: Earnings from parents or spouses regularly used to pay expenses from any bank account
Stay-at-Home Mothers
A 2013 update to Regulation Z answers stay-at-home-mothers (SAHM) on what to put down for income on credit card applications. SAHM have essential jobs but might not earn money outside of the home.
“Accessible income” could include any earning sources funded by a non-applicant.
- Deposits into a joint account shared with the applicant
- Deposits into an account to which the applicant does not have access but regularly transfers a portion of the money to the applicant’s bank account
- Uses a part of the non-applicant income to pay for the applicant’s expenses
Total Available Assets
The answer to total available assets for credit card applications might surprise you. With this question, the banks are trying to measure the size of your safety net – the resources you can tap into during a financial emergency to stay current on your monthly payments.
Liquid Assets
When applying for a credit card, total available assets are the liquid resources at your disposal. Liquid assets are property you can quickly convert into cash without losing substantial value.
Cash, stocks, bonds, certificates of deposits, and shares held in bank or investment accounts are examples of liquid assets.
Consumers can easily tap into their liquid assets during financial hardship to pay their credit card bills, avoiding delinquency or default.
Illiquid Assets
Illiquid assets should be omitted from a credit card application as they do not count towards the total available resources. You can sell illiquid assets and convert them to cash, but often at a substantial loss during a financial emergency.
Examples of illiquid assets are your house, car, boat, jewelry, musical instruments, and artwork. Still, they can also include other costly resources that can be converted into cash quickly.
- Mutual funds often include penalties for early withdrawal
- 401K & IRA funds impose tax penalties for early withdrawal
Monthly Spending
Many banks will ask you approximately how much you will spend each month with this credit card. In this case, they want to estimate your revenue potential and choose an appropriate account limit.
- Interchange fees average 3% of every purchase
- Interest charges apply to those revolving balances
Best Answer
The best answer to the monthly spending with credit cards is an honest estimate consistent with your responses to earlier questions. The amount should be reasonable given your free cash flow: income minus fixed expenses.
For instance, suppose your monthly income is $5,000, and your fixed housing costs consume $1,400, leaving you with $3,600 to fund other living expenses.
The back-end debt-to-income ratio for an auto loan might be 36%, meaning your fixed car payment consumes an additional $400 each month (28% for housing plus 8% for the vehicle), leaving you with $3,200 to fund variable costs for gas, utilities, groceries, etc.
In this case, the best response might be to pick a spending number in the mid-range of your free cash flow after fixed expenses, such as $1,600.
Worst Answer
The worst answer to the monthly spending with this credit card is wildly inconsistent with your earlier responses to the income and housing questions. In other words, you do not want to be too high or low.
Once again, suppose your monthly income is $5,000, and your fixed housing costs consume $1,400, leaving you with $3,600 to fund other living expenses.
- A $100 per month spending estimate would be too low. The bank would classify you in a minimal revenue category because you would not generate meaningful interchange fees or interest charges.
- A $4,000 monthly spending projection would be too high, and the bank would classify you in a high-risk category because payment default is highly likely when you charge more than you can afford to repay.
