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.”

Your credit score is going to play an important role in several areas of your life. Everything from how much you pay for your mortgage and how much you pay for a car loan or what your auto insurance rate is, all are impacted by credit score. There are several different parts that impact your credit score and some easy ways that you can improve your credit score.

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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. A lot of people assume that your salary is going to impact your credit score directly, but that’s not true. They are not going to look at your income to determine what your credit score is.

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.

Improving Your Credit Score

It’s important that you have the best credit score possible. As we mentioned, it’s going to play a major role in the interest rates that you get or the chances you have of getting approved to borrow money.

Before you start improving your credit score, it’s important that you check to see what your credit score is. If you don’t know where you’re at, it’s difficult to reach your goal. You may be surprised to see how high your credit score is.

One simple way to improve your score is to pay all of your bills on time. It may seem like an obvious tip, but it’s one of the most important. Missing payments on your bills will put a huge dent in your credit score. One of the best things that you can do is make sure that you always pay all of your debts and monthly bills by their due date. Do whatever you must to ensure that you’re not missing a payment. Set reminds on your phone, mark your calendar, or put those bills on auto draft.

Another way to improve your credit score is to take out a quality credit card. If you only have one credit card, or you don’t have a credit card at all. Getting a card is a great resource to improve your credit score. As we mentioned, you should always be aware of much of your credit limit that you’re using. Maxing out your credit card is never a good idea, even if you’re making all of the payments on time. If you’re trying to make the most out of your credit card, try not to exceed more than 25% of your credit limit.

If you can’t get approved for a traditional credit card, then you can apply for a secured credit card. A secured credit card actually works more like a debit card than a credit card, but all of the major credit bureaus are going to pull the information when calculating your credit score. With a secured credit card, you will put a security deposit on the card, and then that’s your credit limit. If you put $1,000 on the card, then you’ll have a $1,000 limit on your card. It’s not a true credit card, but it’s a simple way to boost your credit score if you can qualify for a traditional type.

Another way that you can improve your score is to dispute some of the marks that are on your report. It’s common that there will be errors on your credit score, which can add up to some serious damages. In fact, errors are so common that a study from the Federal Trade Commission showed that 1-in-5 people have at least one error on their credit report. It’s really easy to check your credit report to look for errors. You’re allowed to get one free copy every year from all of the credit reporting companies, which you can access from

One important thing to realize is your credit score isn’t going to improve overnight. It’s going to take a while for your score to go up. As long as you continue to pay your bills on time, and start chipping away, your score will be back up before you now it.

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, CLU, ChFC, RHU, REBC, ADPA, CITRMS, CIPA has been in the insurance and financial field for over 27 years. Even with years of experience, she continues to create new resources for others. Everything from books to training material.

Susan received her MBA from St. Louis University and her BA from Michigan State University.

She has worked in several areas but excels in writing material for both finances and insurance. Her goal is to give professionals credibility and assist in streamlining the sales process.

She has written countless articles for a variety of websites.

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