Did Your Income Go Up? This One Move Could Help Raise Your Credit Score

Could earning more money really help your credit?  

An increase in income can help your finances in many ways. Obviously, if you make more money, you can invest or save more of it. It's also easier to live on a budget when you have a larger income. 

There's one other thing that an increased income can do for you, though, that you may not necessarily think about. It could help you improve your credit score. Here's how. 

Tell your credit card issuers if your income has gone up 

If your income has gone up, you will want to inform your credit card issuer. You can generally do this by signing into your online account and visiting the section of the website where you update your profile or where you update your personal information.

There should be a question within these areas of the website about how much you earn. Use it to report your newly higher earnings. 

Why does a higher credit limit help your credit score?

So, why would you want to tell your card issuers that you are earning more now than you did in the past? And how could this potentially help your credit score?

It's simple. When your creditors are aware that your income has gone up, this could prompt them to raise the limit on your credit line. This limit, which establishes the maximum amount you are eligible to borrow, is based on many factors including your past credit history as well as your income. When you are earning more, your card issuer may decide you are entitled to borrow more. 

A higher credit limit can have a positive impact on your credit score because it affects your utilization ratio. Your credit utilization ratio is the second most important factor used to set your credit score, with only your payment history having a bigger impact. It is calculated by dividing the credit you have used on your card by the total amount of credit that has been extended to you.

When your credit limit is raised because your income has gone up, this will immediately result in an improvement to your credit utilization ratio. Say, for example, you had a $100 balance on a credit card with a $500 limit. You would have a 20% credit utilization ratio ($100/$500). But if your credit limit was raised to $1,000, then you would instead have a 10% utilization ratio. Since a lower utilization ratio is preferable, this could result in an immediate bump up in your credit score.

Now, there is no guarantee your card issuer is definitely going to extend you a larger line of credit just because you report that your income has gone up. But there is definitely a chance this could happen. And since it takes only a second to update your income with your card issuer and there is absolutely no downside to signing into your online account and doing so, it doesn't hurt to keep your credit card company updated when you get a raise.