How Does Salary Impact My FICO Scores?
Salary is not a factor in computing your FICO score. The key reason is that income is not included in your credit reports and only data on your credit reports is included in a FICO credit score. The three major credit reporting agencies used to include salary on their credit reports but because the information came from consumer applications, it could not be validated and not considered accurate so it was removed in the early 1990s.
This is also true regarding other scores that use only credit report data. Other data points not included, that indicate your “value” are net worth, assets, savings, and other investments. This information is not on the credit report and is not evaluated in the FICO score.
Here is another thing to consider – is someone with a higher income more creditworthy than someone with a lower income? The answer, surprisingly, is no. Income may be a factor in your ability to pay your bills but not how or if you will pay your bills.
You can have a low income, are responsible, don’t spend beyond your means and pay your bills on time. Income is more important when you apply for a mortgage compared to a credit card. A mortgage is a much larger purchase and commitment than a credit card. Therefore, more information is gathered to approve the loan, such as assets and net worth along with your payment history.
There are scores that use income, but these scores use income data from a loan application, which are called application scores. Information from the application such as income, length of employment, length at residence is used along with credit report information. These scores reside at the lender and are used by the lender to make decisions. These scores are not available to consumers and are considered custom scores.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.