Did your bank or credit card issuer ask you to update your income information recently?
This is an increasingly common practice by financial institutions that lend money to customers. And there are a few reasons they are asking for it in 2022.
On a recent episode of The Clark Howard Podcast, money expert Clark Howard explained why there has been an uptick in requests for updated income information and gave advice on what you should do if you’re asked to provide it.
Let’s walk through what you need to know.
Why Are Banks and Credit Card Issuers Asking for Updated Income Information?
If you’ve recently received a letter in the mail or a pop-up message upon logging into your online portal requesting information about your current income situation, know that you’re not alone.
As the United States turns its attention to a post-COVID-19 pandemic financial situation that is mired in inflationary issues, lenders are concerned about the status of the people to whom they’ve previously agreed to extend lines of credit.
“What’s going on here is the credit card companies are really worried about how much people’s incomes have changed over the cycle of the pandemic,” Clark says. “With how much people have changed jobs and all the people early in the pandemic that experienced very heavy layoffs, they’re concerned that you’re not going to have the income to support the credit card credit limit you have.
“So this has gone from being an infrequent practice to almost every large credit card issuer in the country asking repeatedly for an update of income.”
Should You Update Your Income Information When Requested?
When you receive these requests from your bank or credit card issuer, your first instinct may be to ignore them. After all, you already gave them plenty of personal financial information when the transaction or application was processed, right?
You’re not required to respond to these voluntary requests, but there may be some unpleasant and potentially damaging consequences to taking that approach. So you may want to think twice before clicking delete or throwing the mailing in the trashcan.
Clark says that he updates his income information when requested. Should you join him? Let’s look at the reasons you may want to consider it.
Reasons To Update Your Income Information
If you’re one of the fortunate ones to have endured the job market shifts through the pandemic and came out at either the same or an increased income, you may find you’re best served by updating this information.
Clark says you’re best served to communicate with the bank or card issuer to ease their concerns about your potential to be a future liability based on income fluctuations.
“If your income has stayed the same or risen, do that update so that you’re not facing the possibility of suddenly they shut off your credit card completely, cancel you as a customer or greatly reduce your credit line,” Clark says. “Because what they don’t know is what they fear could hurt them.”
Possible Repercussions of Not Updating
If your credit card lender decides to reduce or terminate your account as a result of non-updated income, you could see the following impacts on your financial life:
- Reduced spending power. This one is the most straightforward. If you had a $10,000 credit limit on your credit card, a reduction to $3,000 or removing that card from your wallet altogether could keep you from being able to spend at the register like you previously did.
- Credit score uncertainty. Another consequence you may not be considering is a negative impact on your credit score. The formula for your FICO score includes things like credit utilization percentage and length of credit history. If your credit limit is lowered on a card, you’re likely to end up using a higher percentage of that available credit even if your spending habits remain the same. And if your account is closed, it may negatively impact your score on the length of credit history.
- Future business with that lender could be impacted. The credit card relationship may seem like a minor deal in the grand scheme of things, but what if that lender is the source of a good auto loan or home mortgage rate you may want in the future? Having a forced closure of your account on record won’t automatically disqualify you, but it’s something the lender will scrutinize during the approval process.
Potential Benefits To Updating
That all sounds like stuff you’d want to avoid. But there also are potential positives you could gain from updating your income information:
- Potential for a higher credit limit. You may find that a lender offers you a larger line of credit as a result of new information that reflects upon you favorably as a strong borrower. In the past, this was actually the more common reason a bank or credit card lender would ask you to update the information. They want to lend you as much money as they think you can repay responsibly.
- New, better offers may come your way. You also may find that you’ll start getting offers and benefits the lender typically sends only to its higher-end clientele. So, in other words, if you’ve always wanted that fancy platinum card that Clark tells you not to pay for, your chances are better with an updated income profile.
Reasons Not To Update Your Income Information
If you’ve lost your job or your income has decreased in recent years, Clark says it is “probably not the best idea” to respond to the request for updated income information.
Doing so could result in the reduction of your credit limit during a time period in which you may need to be preserving it.
You can avoid updating it voluntarily for as long as needed, but there’s a chance that the lender may require that you do so as a means of keeping your account active. If that happens, you’ll likely have to update honestly and hope for the best.
Credit card issuers are asking for updated income information frequently in 2022.
And if you think about it from their perspective, it makes good business sense to check up on the status of their customers amid such a tumultuous economic time period that has been impacted by a pandemic and inflation.
“They’re really worried about people’s amounts of credit card debt, which, ironically enough, is what I’m worried about: how much credit card debt people are taking on.”
Clark’s advice is pretty simple: If you’ve maintained your income level or it has increased since the card issuer last requested it, you’re probably safe to go ahead and update that information voluntarily.
If you are not that fortunate, you may be best served to skip the voluntary update as you navigate your financial hardship.
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