“Household” income no more a critical criteria for credit card issuers
On Friday, the Federal Reserve announced that credit card lenders cannot evaluate the repaying ability of the applicant based on the “household” income. All credit card application forms, till date, had the “household” income section that needed to be filled by the applicants. Credit card issuers used to take this figure into consideration, in addition to the credit history of the applicant before either approving or rejecting the request for a credit card. This information was also used by the issuers to set the spending limit on the card for applicants.
However, with the Federal Reserve’s announcement on Friday, things are bound to change now. Credit card companies should consider the individual income of the applicant before approval. This seems to be a better idea as compared to considering the “household” income because, at the end of the day, it is the individual who has to pay off the debts on his credit card; it is not the responsibility of the people he/she lives with.
This announcement also makes getting credit cards even more difficult for people with lesser income. Those who were looking to go in for that platinum card or interest free balance transfer card may have to rethink if their income is limited. The applicants who do get the required approval for the credit cards may have to be content with the credit limit that is decided by the bank. Going forward, the banks will only have to consider the credit report, individual income and credit score while approving the application and setting spending limits.