Mythbuster: Your paycheck is what affects credit scores

Of all the myths about what affects credit scores, one of the most persistent seems to be that a higher income level leads to a higher credit score. After all, if you make more money, it’s likely that you can secure more credit, and that would make your score go up, right?

In actuality, that’s not how credit scores are calculated. Instead of looking at income, credit scores rely most heavily on factors like:

Payment history

  • How much new credit (in the form of credit cards or loans) you’ve taken on recently
  • How much you owe
  • The mix of credit types that you have

(For a closer look at how credit scores are calculated, download our free e-book, The Building Blocks of Credit.)

A credit score scenario

Someone with a modest income might be doing all the right things by paying bills on time, avoiding the impulse to run cards up to their limit, refraining from securing new lines of credit, and limiting the number of credit cards they have. That person could boast a credit score of over 800 (the maximum is 850, but anything in the 800s is considered stellar) and therefore be considered highly attractive to lenders and a good candidate for a loan.

On the other hand, you might have a millionaire, who regularly incurs late charges because of missed payments, often gets new cards because they’ve reached existing credit limits, and carries a very close debt-to-credit ratio. Even though that person is pulling in a seven-figure salary, those habits would likely push his or her credit score down hundreds of points, even under 500, which is considered very low.

How your job can affect your credit

Employment does play a part in some overall credit calculations. According to Julie Bruning, Vice President of Consumer Lending at Cobalt Credit Union, dramatic changes in job status can affect lending decisions to some degree.

“In addition to looking at scores, we consider other parts of your financial management, and that includes employment,” she says. “If you’ve stayed at one company for years, that says something about your stability, compared to someone who switches jobs every few months.”

So, if you’re wondering what affects your credit score, the answer doesn’t include your income. But frequent job hopping – regardless of how much that might boost your take-home pay – does tend to ding your credit profile. When it comes to improving your credit, it’s important to focus more heavily on how you manage your credit rather than on how to increase income.