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Guessing Consumer Income From Credit Reports

By Faye Mergel
Published: Tuesday, February 9th, 2010

Come February 22, the new Credit CARD Act goes into effect. This will mean a lot of changes in the credit industry, most of which are going to require a lot of adjustments not only from credit card issuers but from credit card holders as well.

Guessing Consumer Income From Credit ReportsCase in point: credit issuers may soon be using credit reports to guess just how much income a consumer is making so that they can properly gauge whether they should be giving credit to a consumer or not.

The situation comes out of a new regulation in the Credit CARD Act which requires lenders to do a more comprehensive check on how well a credit card applicant can pay off the inevitable credit card debt before they actually issue credit cards. While card issuers have the option of straight out asking the applicant about their income, it is more likely that they would be looking for something more official and verifiable. This is where credit reports come in.

The idea of guessing a consumer’s income from their credit reports is not a new one. The new development here is that credit card issuers themselves may use credit reports to determine how well of a borrower a credit applicant is. In fact, credit card reporting agencies have used credit reports which collect a consumer’s payment history, credit usage and credit availability to guess his or her income. Understandably, the accuracy of such guesses will vary. Experts put it in the range of 75% to 85% at the moment. This, however will change rapidly once income guesstimates become more important.

Consumers are not the only ones who are going to be inconvenienced by this new development. Credit card issuers, specially major retail stores who issue their own, store branded credit cards, are also upset over this.

Retail stores see a lot of profits from issuing “instant approval” credit cards to their consumers. Without the regulation, stores can readily issue store branded credit cards right at the cashier should the customer opt to apply for one. With the regulation, it is no longer going to be as easy and convenient. The regulations require consumers to provide a proof of income if they want to apply for a credit card. Obviously, the added hassle is going to turn away a considerable number of potential card applicants.

The loss in credit card applicants is going to be a big blow to these retailers. Store branded credit cards make up a considerable part of their business since, once a customer holds one of their credit cards, they now have that consumer in their mailing list and they can send them promotional materials and correspondence to entice them to spend on sales, special offers and other such gimmicks.

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