How Your Income and Credit Score Affect Your Ability to Borrow Funds

When considering applying for a loan, mortgage, or credit card, it is likely that you will be analyzed based on a number of financial factors by the potential lender. These criteria will typically include your income and credit score – as well as other monetary related components.

While your income gives creditors an idea of how much you have coming in each month, your credit score will actually provide a much clearer picture of how good you are at paying your bills and other financial obligations. It is important, then, to have enough income to pay any new loan that is being applied for, as well as to keep your credit score high so that lenders feel that you have a positive credit “report card.” If you’re in need of affordable life insurance rates; we can help.

Does Your Income Affect Your Credit Score?

As it pertains to calculating your overall credit score, the amount of income that you earn is not considered to be a major factor – although your income and credit score are related in other ways.

Conversely, it is the amount of money that you have borrowed in the past – as well as your overall payment history – that will have a much larger affect on your credit score. In most instances, lenders will use the traditional FICO scoring system, which has no relation to the amount of your earned income.

What Does FICO Mean?

In most instances, the credit scoring system that is used in calculating your credit score is that of the Fair Isaac Corporation, or FICO. This company provides the overall credit score model to the various financial institutions that want to rate their potential borrowers.

There are a number of factors that your overall credit score will be based upon. Each of these criteria plays an important part in making your credit score either move up or down. In addition, each of these components of your credit score carries a certain percentage of the total “weight” of your total score.

These primary credit scoring factors include:

  • Type of Credit Utilized – The type of credit that you use will account for approximately 10% of your total credit score. This means that you will be rated based upon whether you have “good” debt such as a mortgage loan, or “bad” debt such as high credit card balances. In this category, it is typically advantageous to have a variety of different types of credit as versus just one.
  • Amount of New Credit Applied For – The amount of new credit that you have applied for pertains to the accounts that you have most recently opened. This factor also accounts for roughly 10% of your total credit score calculation. In addition, new credit can also include any recent inquiries from potential creditors or lenders – even if you did not actually obtain a loan or credit card from them. A high amount of activity in this category can negatively affect your overall credit score.
  • Length of Your Credit History – The length of time that you have had credit can also affect your credit score. This component accounts for 15% of your total credit score weighting. The length of your credit history refers to the length of time since you opened your first credit account. It is always better to have a long credit history than a short one.
  • Total Amount of Debt That You Owe – The total amount of debt that you owe can account for 30% of your total credit score weighting. This category considers not just the amount of debt that you possess, but also what percentage of your total credit limit you are using. For example, if you are eligible to borrow up to $10,000 on your credit cards, and you carry a $2,000 balance, you will be affected more negatively than if you only carried $500 in balance obligation.
  • Your Payment History – Your history of making payments to your creditors is the most heavily weighted item in terms of calculating your credit score. This component is responsible for 35% of the total. If you pay all of your bills on time and you do not possess any judgments, wage garnishments, or bankruptcies on your record, then you are much more likely to score higher in this category than someone who is regularly late with their bill payments and has recently filed for bankruptcy.

Good and Excellent Credit Scores

Once all of the above factors have been added together, they are subsequently provided with a numerical credit score. A total credit score of 700 or more is considered to be good – with a total score of 750 or higher being ranked as excellent.


Susan Wright holds a BA from Michigan State University and an MBA from St. Louis University. Having over 20 years of working experience in the insurance and financial services industry, she has trained more than 10,000 financial services representatives. Susan has had licenses in real estate, insurance, and NASD Securities, and she has earned nine industry professional designations, including CLU, ChFC, RHU, REBC, CSA, CLTC, CCFC, CSS, and ADPA. Read more about her on Google+

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