Is Your Employment Salary Dictating Your Credit Options?

30 April 2019

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Here’s how your pay could be affecting your borrowing ability and terms. While there is an abundance of credit options available on the market today, the ones that you can actually access will depend on a number of factors specific to an applicant. Most people automatically go to their credit scores and history when considering whether they will be deemed suitable for various credit or lending products. While it is certainly an influencing factor, your approval (or even consideration) for loans, consumer credit or even alternative lending is impacted by much more than past payment records.

It is not unusual to find that employees with similar salaries in a company can be limited to different credit options and application decisions. Past research has found distinctions in the amount of credit carried based on gender, age, and even their income brackets. Your income, including your employment salary, plays a large part in the options available to you, and its impact goes well beyond assessing whether you can afford the monthly repayments.

It Can Narrow The Pool Available Both Now And In The Future

One of the obvious ways your salary determines your credit options is by dictating how much you have each month to dedicate to credit repayments. Your free income will set the tone for which lending option you can choose, the term taken, and even the principal amount you can access. Many publications have highlighted the present gender pay gap in the workplace, with women earning 78.6 percent of their male's colleagues salary in the United States and the Slovakian Republic, with similar proportions elsewhere. This, in turn, impacts on the credit repayments those workers can afford to make, and the pool of credit options dwindles based on this information. It also affects an employee's ability to pay existing debts and keep their credit utilisation low. This is one of the ways to improve your credit profile, and boost your chances of securing consumer credit or a loan. For someone with lower pay and less left over after expenses, this task would then prove to be harder, having a ripple effect on future credit options.

Your Ability To Repay Equates To Interest Charged

Your income can also dictate the interest rates and terms your lender sets for your credit arrangement. Applicants that are deemed risky can attract higher interest charges or delinquent payment penalties as lenders look to secure their assets. Based on your income, your ability to not just repay, but to comfortably repay is assessed. A person that has more disposable income after their monthly outgoings would be seen as more favourable to credit institutions, since any changes in their circumstances are more likely to be handled better than someone that has minimal disposable income when applying.

Boosting Your Chances Of Approval

One of the most commonly recommended ways to boost your chances of securing credit is to boost your payment history. Paying your bills on time and drafting an effective debt repayment plan will favourably reflect on your application in the eyes of a lender. If you can increase your current debt repayments before applying, your debt levels will be lower and will be reflected in your regular credit rating report. In addition, when it comes to applying for credit, time and choose it well. Event those with stellar credit scores can be denied credit if their records show too many credit applications in a recent period.

Another option to boost your approval is to increase your income. This can be done by establishing additional income sources, such as looking into flexible side jobs or hustles, or looking into moving to a better paying career. If you do opt to switch careers, be aware that an increasing number of employers are including financial checks in their employment vetting procedures. Changing jobs can also impact on your credit score; credit reports are a typical part of the borrowing procedure, and your employment history is a prominent part of that.

When applying for credit, there are many factors that go into making a final decision, including your employment income. People attempt to increase their salaries for various reasons, from trying to repay their debt to saving for their first home. However, your pay scale can also be an important part of the puzzle when it comes to securing credit in the first place. It affects your ability to repay and your reliance on credit, which in turn affects your credit score. Following on, your credit score can then affect your further borrowing options, interest rates, and even your employment choices in the future. In the end, it is a domino effect, and it all begins with maximising your potential in the salary department.

Cindy Trillo (guest blogger)

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