What defines "income" on a retiree's credit card application?

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munemaker
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What defines "income" on a retiree's credit card application?

Post by munemaker » Mon Apr 15, 2019 9:09 am

OK, I had a good 6 digit income before I retired a couple years ago. I deferred social security and have an almost negligible pension (no inflation adjustment) from a job I worked decades ago. I am essentially living off of my investments.

I was in a hurry to take advantage of a CC application a while ago and, not knowing what to enter, used my salary from my job prior to retirement. In retrospect, I realize that was not correct. What really got me thinking about this was watching Michael Cohen testify before Congress, and how he inflated the value of his assets to obtain a bank loan. Well, I don't want to fraudulently inflate the amount of my income to obtain a credit card.

We have millions in financial assets, no debt (other than revolving monthly CC balances which are paid in full) and in our entire lives, have never paid a single bill late. The chances of us not paying a CC bill is pretty close to zero. Still, I do not want to fraudulently misrepresent my situation on a CC application.

I am trying to figure out what would constitute my income for the purpose of a credit card application. Some possibilities:
1) (Modified) adjusted gross income on my 1040: This would have been very, very low during the past few years when I was on ObamaCare. Now I am doing large (150k+/year) Roth conversions for the next 5 years, so MAGI would be respectable. This approach really does not seem right though, because doing a Roth conversion does not really indicate my ability to pay the credit card balance.
2) Use the 4% rule. We have millions in financial assets, so this number would be respectable too. This would seem to indicate my ability to pay the credit card balance. I don't know if the bank would accept this if I were asked to provide substantiating documentation.
3) Add up all the dividends, interest, and CG distributions in tax deferred, tax free and taxable accounts. This doesn't seem to be indicative of my ability to pay the CC balance either, because I am invested in index funds which generally don't pay much in distributions. I have not calculated it, but this number would probably be low.

Any ideas? What do others do who are living off of their investments?

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Re: What defines "income" on a retiree's credit card application?

Post by jebmke » Mon Apr 15, 2019 9:11 am

I haven't applied for a card in a while. I'd be tempted to use a number that I can reconcile to my tax return in case someone decides they want support. Note that this would include tax-exempt interest. I would probably exclude capital gains and Roth conversions if they appeared on my recent return.
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Re: What defines "income" on a retiree's credit card application?

Post by yohac » Mon Apr 15, 2019 9:13 am

I use MAGI from last tax return. But there are no real rules. I've gotten a lot of cards over the years and have never been asked for income verification. Granted some places do ask, like PenFed.

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Re: What defines "income" on a retiree's credit card application?

Post by Lafder » Mon Apr 15, 2019 9:17 am

I usually just put 100,000$ Or maybe sometimes I put 200,000.

I figure my real income is none of their business and I am giving an underestimation.

What about using your expenses? Your income exceeds that. Or the amount you deposit into your bank account each year?

As long as you are not being fraudulent, does it matter? If you are inflating your income to obtain debt you are going to default on it is entirely different than a card you are responsible with.

I think using your last employment income sounds ok too.

I am curious what others say.

lafder

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munemaker
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Re: What defines "income" on a retiree's credit card application?

Post by munemaker » Mon Apr 15, 2019 9:18 am

yohac wrote:
Mon Apr 15, 2019 9:13 am
I use MAGI from last tax return. But there are no real rules. I've gotten a lot of cards over the years and have never been asked for income verification. Granted some places do ask, like PenFed.
I have also gotten a lot of credit cards over the years and never been asked for income verification, not even from PenFed. I never thought about it then, because it was so straightforward.

123
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Re: What defines "income" on a retiree's credit card application?

Post by 123 » Mon Apr 15, 2019 9:19 am

They often ask for income not taxable income. If you have investments there are typically capital gains (whether they are realized or not). Taxable income, from a tax return, may not be an indicator at all when you consider the exemption of muni bond interest etc. Rental income may be offset for tax purposes by depreciation. So investors can have lots of income that isn't related to the tax return. There is no reason not to include it in an application for credit if it can be substantiated if required.

An investor with a $1M portfolio could have unrealized capital gains of $50,000 or more in many years.

If your life were operated like a business (investments often marked-to-market for example) your income would often be higher. So there's a lot of room for flexibility regarding "income" questions.
Last edited by 123 on Mon Apr 15, 2019 9:26 am, edited 1 time in total.
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Re: What defines "income" on a retiree's credit card application?

Post by RickBoglehead » Mon Apr 15, 2019 9:23 am

Why are you so concerned about using numbers that convey your ability to pay? The credit card company asks for information on the application. You supply the information. They give you a card.

I haven't given an accurate number on a credit card or loan application (except for mortgage 11 years ago) ever. I always understate it.

When you indicate "Retired" for occupation, and then give your interest, dividends, and capital gains as income, that's the end of the story.
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Re: What defines "income" on a retiree's credit card application?

Post by Mike Scott » Mon Apr 15, 2019 9:24 am

Sometimes, but not often, there is an income verification request. If you don't have W2s or a paycheck, the next easiest is your most recent tax return.

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Re: What defines "income" on a retiree's credit card application?

Post by samsoes » Mon Apr 15, 2019 9:29 am

How about stating your average monthly investment withdrawal amounts on the application?
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Re: What defines "income" on a retiree's credit card application?

Post by MnD » Mon Apr 15, 2019 10:01 am

I use/used MAGI pre and post retirement.
Income is income - no point in making arbitrary assumptions like "well this income was used for that so I won't count it".
That said, we don't have a lot of fully tax exempt non-reportable income.

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Re: What defines "income" on a retiree's credit card application?

Post by Time2Quit » Mon Apr 15, 2019 10:26 am

munemaker wrote:
Mon Apr 15, 2019 9:09 am
1) (Modified) adjusted gross income on my 1040: This would have been very, very low during the past few years when I was on ObamaCare. Now I am doing large (150k+/year) Roth conversions for the next 5 years, so MAGI would be respectable. This approach really does not seem right though, because doing a Roth conversion does not really indicate my ability to pay the credit card balance.
Can you please explain how you are doing $150K Roth conversions in retirement?

Thanks.
"It is not the man who has too little, but the man who craves more, that is poor." --Seneca

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Re: What defines "income" on a retiree's credit card application?

Post by michaeljc70 » Mon Apr 15, 2019 10:36 am

The problem with using a tax return is no income/dividends/capital gains from IRAs would show. Clearly that is income. It is just not taxable income. I would include whatever is on your tax return plus non-taxable income.

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Re: What defines "income" on a retiree's credit card application?

Post by munemaker » Mon Apr 15, 2019 10:49 am

Time2Quit wrote:
Mon Apr 15, 2019 10:26 am
munemaker wrote:
Mon Apr 15, 2019 9:09 am
1) (Modified) adjusted gross income on my 1040: This would have been very, very low during the past few years when I was on ObamaCare. Now I am doing large (150k+/year) Roth conversions for the next 5 years, so MAGI would be respectable. This approach really does not seem right though, because doing a Roth conversion does not really indicate my ability to pay the credit card balance.
Can you please explain how you are doing $150K Roth conversions in retirement?

Thanks.
It is off the topic and I don't want to publish all my personal info on here. I'll try to write an explanation and PM it to you. Give me a little time to put it together.

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Re: What defines "income" on a retiree's credit card application?

Post by WoodSpinner » Mon Apr 15, 2019 10:59 am

Time2Quit wrote:
Mon Apr 15, 2019 10:26 am
munemaker wrote:
Mon Apr 15, 2019 9:09 am
1) (Modified) adjusted gross income on my 1040: This would have been very, very low during the past few years when I was on ObamaCare. Now I am doing large (150k+/year) Roth conversions for the next 5 years, so MAGI would be respectable. This approach really does not seem right though, because doing a Roth conversion does not really indicate my ability to pay the credit card balance.
Can you please explain how you are doing $150K Roth conversions in retirement?

Thanks.
Puzzled by your question.....

The mechanics are similar to a $20K conversion, while the tax implications are different.

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Re: What defines "income" on a retiree's credit card application?

Post by Hockey10 » Mon Apr 15, 2019 11:29 am

Since you have never paid a bill late in your life, you should have an outstanding credit score. Put in a number that is a reasonable estimation of your income for this year (interest, dividends, cap gains, etc...) and submit the application. My guess is that you will be approved.

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Re: What defines "income" on a retiree's credit card application?

Post by TravelGeek » Mon Apr 15, 2019 11:38 am

Lafder wrote:
Mon Apr 15, 2019 9:17 am
I usually just put 100,000$ Or maybe sometimes I put 200,000.

I figure my real income is none of their business and I am giving an underestimation.

...
As long as you are not being fraudulent, does it matter?

...
I am curious what others say.
I just looked at a Chase application and when you “e-sign” it, you agree to the following:

“I certify that I have read and agree to all pricing, terms, conditions, authorizations and disclosures provided with this request for credit and that all information provided is true and correct.

(holding added)

So IANAL, but making up a number, whether too high or too low, would not be “true and correct” information.

Now, full disclosure, in the past I didn’t generally provide “true and correct” information either, mostly because it was difficult to predict/calculate at the time of application. So I usually just entered a rough current tax year W-2 estimate, which included base salary and a guestimate for RSU/options. And I usually didn’t include my wife’s income because I figured that my number was “enough”.

Now I face the same question as the OP. My W-2 days ended last year. What concerns me is that card companies have the data I entered in the past. So if I were to now enter my expected 2019 MAGI, that would be significantly lower. Will that raise red flags or will an occupation of “retired” explain the drop? And, will they look at my total available credit from existing cards and determine that it is too high for my new stated income? (credit score > 800, no late/missed payments)
Last edited by TravelGeek on Mon Apr 15, 2019 11:40 am, edited 1 time in total.

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Re: What defines "income" on a retiree's credit card application?

Post by midareff » Mon Apr 15, 2019 11:39 am

I use incoming cash flow(s) to my Bank.

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Re: What defines "income" on a retiree's credit card application?

Post by jimkinny » Mon Apr 15, 2019 12:16 pm

I recently applied for a CC. I used AGI plus tax deferred income from IRAs. I am retired.

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munemaker
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Re: What defines "income" on a retiree's credit card application?

Post by munemaker » Mon Apr 15, 2019 12:22 pm

Thanks everyone for the input.

Looks like almost anything goes.

And I guess if the bank asks for income verification, one can just ignore their request and life goes on.

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Re: What defines "income" on a retiree's credit card application?

Post by HawkeyePierce » Mon Apr 15, 2019 12:28 pm

Note that if you ever get hit by an Amex Financial Review, they will require access to your previous tax return via IRS form 4506-T, which gives them access to your return directly from the IRS.

If your stated income is too off from your tax return, Amex may choose to reduce or eliminate your credit limits.

You can decline, but you'll lose all your Amex accounts.

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Re: What defines "income" on a retiree's credit card application?

Post by Quickfoot » Mon Apr 15, 2019 12:31 pm

I have 15+ credit cards (no balances) and have NEVER been asked for income verification though I am truthful about my income (there is no reason not to be). There are far more concerned about the amount of debt you have and your payment history than your income, I would imagine rather than asking for income verification for a credit card they would just deny your application. I have noticed as income has gone up I've been offered higher credit limits.
Last edited by Quickfoot on Mon Apr 15, 2019 12:35 pm, edited 1 time in total.

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Re: What defines "income" on a retiree's credit card application?

Post by whodidntante » Mon Apr 15, 2019 12:33 pm

I think it's vague on purpose. So come up with a reasonable definition that you could justify. If they wanted something specific, e.g. prior year's AGI, they would have said that.

For a retiree, social security, pensions, interest, dividends, and likely distributions from your treasure room all count, I think.

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Re: What defines "income" on a retiree's credit card application?

Post by HawkeyePierce » Mon Apr 15, 2019 12:35 pm

Quickfoot wrote:
Mon Apr 15, 2019 12:31 pm
I have 15+ credit cards (no balances) and have NEVER been asked for income verification though I am truthful about my income (there is no reason not to be). There are far more concerned about the amount of debt you have and your payment history than your income, I would imagine rather than asking for income verification for a credit card they would just deny your application.
An Amex FR comes after you've been an Amex customer for some time. Nobody is entirely sure what triggers one but it's likely maxing out cards, sudden large and unusual (for you) expenses, failures to pay, etc.

It's more common if you have their charge cards than their credit cards.

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Re: What defines "income" on a retiree's credit card application?

Post by Quickfoot » Mon Apr 15, 2019 12:37 pm

I could see Amex potentially requesting income as their repayment terms are atypical. I did have an issuer set a card limit to my current balance a decade ago, I was getting divorced at the time and balances on multiple cards spiked at the same time, one of the companies saw the trend and decided not to take the risk.

Today I have multiple cards with very high limits and have charged 20K purchases on them without any follow up from them, it was paid off within a few days though (put it on the card for the rewards). The funny thing is they'll flag and deny a $200 BestBuy purchase as potential fraud but let a 20K purchase go through with no problems :).
Last edited by Quickfoot on Mon Apr 15, 2019 12:47 pm, edited 1 time in total.

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Re: What defines "income" on a retiree's credit card application?

Post by OAG » Mon Apr 15, 2019 12:41 pm

Pension + SS Benefits + Interest + RMD (if applicable). Seems like enough. I am not trying to impress someone. They always give me the CC but then I only use 1 of the 3 I have.
OAG=Old Army Guy. Retired CW4 USA (US Army) in 1979.

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Re: What defines "income" on a retiree's credit card application?

Post by whodidntante » Mon Apr 15, 2019 12:45 pm

Quickfoot wrote:
Mon Apr 15, 2019 12:37 pm
I did have an issuer set a card limit to my current balance a decade ago, I was getting divorced at the time and balances on multiple cards spiked at the same time, one of the companies saw the trend and decided not to take the risk.

Today I have multiple cards with very high limits and have charged 20K purchases on them without any follow up from them, it was paid off within a few days though (put it on the card for the rewards). The funny thing is they'll flag and deny a $200 BestBuy purchase as potential fraud but let a 20K purchase go through with no problems :).
I had a $30 gas station purchase trigger a fraud alert. I called in and cleared it up. The next time I bought gas there, it happened again. I don't go to that gas station anymore.

But yes, I've noticed that large transactions usually don't raise an eyebrow. I once charged 9k to fund a bank account, and I regularly pay taxes with a credit card. No issues unless I try to buy a tank of gas. Lol

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Re: What defines "income" on a retiree's credit card application?

Post by adamthesmythe » Mon Apr 15, 2019 12:45 pm

>So IANAL, but making up a number, whether too high or too low, would not be “true and correct” information.

That's what > < and ~ signs are for.

I use them whenever I am asked for this sort of information. Partly because it would be a real pain to look up numbers.

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Re: What defines "income" on a retiree's credit card application?

Post by DrGoogle2017 » Mon Apr 15, 2019 12:47 pm

I put the same amount every time they ask me. I have Chase bank and they ask the same question so I answer the same way. I figure if I never default from any credit card then I’m safe. My tax return doesn’t represent the true income anyway. Depreciation for example comes to mind. Make income a lot smaller than it appears. SS is only taxed up to 85%.
But I don’t worry too much. I think of Wells Fargo when I apply for any credit card.

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Re: What defines "income" on a retiree's credit card application?

Post by Seasonal » Mon Apr 15, 2019 1:10 pm

WoodSpinner wrote:
Mon Apr 15, 2019 10:59 am
Time2Quit wrote:
Mon Apr 15, 2019 10:26 am
munemaker wrote:
Mon Apr 15, 2019 9:09 am
1) (Modified) adjusted gross income on my 1040: This would have been very, very low during the past few years when I was on ObamaCare. Now I am doing large (150k+/year) Roth conversions for the next 5 years, so MAGI would be respectable. This approach really does not seem right though, because doing a Roth conversion does not really indicate my ability to pay the credit card balance.
Can you please explain how you are doing $150K Roth conversions in retirement?

Thanks.
Puzzled by your question.....

The mechanics are similar to a $20K conversion, while the tax implications are different.
I'm also puzzled. Isn't the answer that you withdraw $150k from an IRA or a 401(k) and put it into a Roth account?

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Re: What defines "income" on a retiree's credit card application?

Post by MathWizard » Mon Apr 15, 2019 1:16 pm

Seasonal wrote:
Mon Apr 15, 2019 1:10 pm
WoodSpinner wrote:
Mon Apr 15, 2019 10:59 am
Time2Quit wrote:
Mon Apr 15, 2019 10:26 am
munemaker wrote:
Mon Apr 15, 2019 9:09 am
1) (Modified) adjusted gross income on my 1040: This would have been very, very low during the past few years when I was on ObamaCare. Now I am doing large (150k+/year) Roth conversions for the next 5 years, so MAGI would be respectable. This approach really does not seem right though, because doing a Roth conversion does not really indicate my ability to pay the credit card balance.
Can you please explain how you are doing $150K Roth conversions in retirement?

Thanks.
Puzzled by your question.....

The mechanics are similar to a $20K conversion, while the tax implications are different.
I'm also puzzled. Isn't the answer that you withdraw $150k from an IRA or a 401(k) and put it into a Roth account?
No, you need to transfer, not withdraw, so have a custodian to custodian transfer. This is a taxable event, so
you may need to make a quarterly estimated withholding.

Seasonal
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Re: What defines "income" on a retiree's credit card application?

Post by Seasonal » Mon Apr 15, 2019 1:35 pm

MathWizard wrote:
Mon Apr 15, 2019 1:16 pm
Seasonal wrote:
Mon Apr 15, 2019 1:10 pm
WoodSpinner wrote:
Mon Apr 15, 2019 10:59 am
Time2Quit wrote:
Mon Apr 15, 2019 10:26 am
munemaker wrote:
Mon Apr 15, 2019 9:09 am
1) (Modified) adjusted gross income on my 1040: This would have been very, very low during the past few years when I was on ObamaCare. Now I am doing large (150k+/year) Roth conversions for the next 5 years, so MAGI would be respectable. This approach really does not seem right though, because doing a Roth conversion does not really indicate my ability to pay the credit card balance.
Can you please explain how you are doing $150K Roth conversions in retirement?

Thanks.
Puzzled by your question.....

The mechanics are similar to a $20K conversion, while the tax implications are different.
I'm also puzzled. Isn't the answer that you withdraw $150k from an IRA or a 401(k) and put it into a Roth account?
No, you need to transfer, not withdraw, so have a custodian to custodian transfer. This is a taxable event, so
you may need to make a quarterly estimated withholding.

Right. I'm not sure what you're disagreeing with. The money has to come out of one account and go into another. There are rules that cover the mechanics and what taxes have to be paid. It's not any harder to do in retirement, which seemed the key point to answer the question asked.

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Re: What defines "income" on a retiree's credit card application?

Post by SQRT » Mon Apr 15, 2019 2:00 pm

I just include dividends and pensions. That has generally been sufficient. Sometimes they ask for tax returns. I have avoided those guys.

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Re: What defines "income" on a retiree's credit card application?

Post by TravelGeek » Mon Apr 15, 2019 2:45 pm

adamthesmythe wrote:
Mon Apr 15, 2019 12:45 pm
>So IANAL, but making up a number, whether too high or too low, would not be “true and correct” information.

That's what > < and ~ signs are for.

I use them whenever I am asked for this sort of information. Partly because it would be a real pain to look up numbers.
Try entering “> 100,000” into Citibank’s or Chase’s online application form. It doesn’t accept it. You could presumably write it into a paper form, but I personally haven’t submitted a paper application in probably a decade.

Both of these banks I just checked do have a pop up in their online application explaining what counts as income. For me at this time it’s interest and dividends/capital gains as I am still years away from Social Security. I will calculate that for my brokerage and 401k/IRA accounts and use that going forward.

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Re: What defines "income" on a retiree's credit card application?

Post by beyou » Mon Apr 15, 2019 3:50 pm

michaeljc70 wrote:
Mon Apr 15, 2019 10:36 am
The problem with using a tax return is no income/dividends/capital gains from IRAs would show. Clearly that is income. It is just not taxable income. I would include whatever is on your tax return plus non-taxable income.
They want to know what income you will have access to that you can spend and pay off your bills.
If you are taking RMDs then yes include that, but I would not include an IRA if you are below 60 and not taking RMD yet.
For my kids, I read that if they can reasonably expect $ from parents, that can count.
For myself as a retiree in the future, I would just take my 4% SWR as my income, if that is your SWR.

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Re: What defines "income" on a retiree's credit card application?

Post by JGoneRiding » Mon Apr 15, 2019 5:01 pm

Quickfoot wrote:
Mon Apr 15, 2019 12:31 pm
I have 15+ credit cards (no balances) and have NEVER been asked for income verification though I am truthful about my income (there is no reason not to be). There are far more concerned about the amount of debt you have and your payment history than your income, I would imagine rather than asking for income verification for a credit card they would just deny your application. I have noticed as income has gone up I've been offered higher credit limits.
I have had a lot of cards too. And never asked for verification but I almost always lie. I agree the only thing a higher stated income has resulted in is a higher limit. And I don't want that! Plus I have w2 income, rental income, investment income and , bonuses that arent predictable. They just want a ball park number.

They also often ask your investment asset amount. I was kind of surprised that the high number was "greater than 50k" that seemed so low and I am a "poor" boglehead

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Re: What defines "income" on a retiree's credit card application?

Post by dcop » Mon Apr 15, 2019 5:03 pm

I just put what I get in Dividends in my tax-deferred retirement accounts even tho I never come close to withdrawing that amount to make it on to my MAGI. I get and cancel cards almost as a hobby to get the promo money, haven't been denied yet.

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Re: What defines "income" on a retiree's credit card application?

Post by Broken Man 1999 » Mon Apr 15, 2019 5:59 pm

I use the last pay stub from 1999 and have never been asked for more info. Being retired, I can manipulate my income at will, but other than an occasional pop-up at American Express asking me to update my income, which thus far I have ignored, I haven't had to answer anything else.

I suppose by now they know everything about us, including our shoe sizes, so they probably don't care that much.

They are fishing to see if they can sell me some overpriced product of some type or another, I would guess.

Broken Man 1999
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Re: What defines "income" on a retiree's credit card application?

Post by Chicago60 » Mon Apr 15, 2019 6:03 pm

Lafder wrote:
Mon Apr 15, 2019 9:17 am
I usually just put 100,000$ Or maybe sometimes I put 200,000.

I figure my real income is none of their business and I am giving an underestimation.

What about using your expenses? Your income exceeds that. Or the amount you deposit into your bank account each year?

As long as you are not being fraudulent, does it matter? If you are inflating your income to obtain debt you are going to default on it is entirely different than a card you are responsible with.

I think using your last employment income sounds ok too.

I am curious what others say.

lafder
Since you asked....if you "put 100,000" or "put 200,000" and that is not accurate, it sure seems like you are committing fraud to me.

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Re: What defines "income" on a retiree's credit card application?

Post by FrugalInvestor » Mon Apr 15, 2019 6:09 pm

We also are living strictly off of our investments until (delayed) Social Security kicks in. We withdraw approximately 3% each year as spending money and that's what I report on a credit card application. I've never been questioned but if I were I would explain as I have here.
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Re: What defines "income" on a retiree's credit card application?

Post by Trader Joe » Mon Apr 15, 2019 6:14 pm

munemaker wrote:
Mon Apr 15, 2019 9:09 am
OK, I had a good 6 digit income before I retired a couple years ago. I deferred social security and have an almost negligible pension (no inflation adjustment) from a job I worked decades ago. I am essentially living off of my investments.

I was in a hurry to take advantage of a CC application a while ago and, not knowing what to enter, used my salary from my job prior to retirement. In retrospect, I realize that was not correct. What really got me thinking about this was watching Michael Cohen testify before Congress, and how he inflated the value of his assets to obtain a bank loan. Well, I don't want to fraudulently inflate the amount of my income to obtain a credit card.

We have millions in financial assets, no debt (other than revolving monthly CC balances which are paid in full) and in our entire lives, have never paid a single bill late. The chances of us not paying a CC bill is pretty close to zero. Still, I do not want to fraudulently misrepresent my situation on a CC application.

I am trying to figure out what would constitute my income for the purpose of a credit card application. Some possibilities:
1) (Modified) adjusted gross income on my 1040: This would have been very, very low during the past few years when I was on ObamaCare. Now I am doing large (150k+/year) Roth conversions for the next 5 years, so MAGI would be respectable. This approach really does not seem right though, because doing a Roth conversion does not really indicate my ability to pay the credit card balance.
2) Use the 4% rule. We have millions in financial assets, so this number would be respectable too. This would seem to indicate my ability to pay the credit card balance. I don't know if the bank would accept this if I were asked to provide substantiating documentation.
3) Add up all the dividends, interest, and CG distributions in tax deferred, tax free and taxable accounts. This doesn't seem to be indicative of my ability to pay the CC balance either, because I am invested in index funds which generally don't pay much in distributions. I have not calculated it, but this number would probably be low.

Any ideas? What do others do who are living off of their investments?
Ask the credit card issuer how they define income. Tell the truth. Always.

Trader Joe
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Re: What defines "income" on a retiree's credit card application?

Post by Trader Joe » Mon Apr 15, 2019 6:16 pm

Trader Joe wrote:
Mon Apr 15, 2019 6:14 pm
munemaker wrote:
Mon Apr 15, 2019 9:09 am
OK, I had a good 6 digit income before I retired a couple years ago. I deferred social security and have an almost negligible pension (no inflation adjustment) from a job I worked decades ago. I am essentially living off of my investments.

I was in a hurry to take advantage of a CC application a while ago and, not knowing what to enter, used my salary from my job prior to retirement. In retrospect, I realize that was not correct. What really got me thinking about this was watching Michael Cohen testify before Congress, and how he inflated the value of his assets to obtain a bank loan. Well, I don't want to fraudulently inflate the amount of my income to obtain a credit card.

We have millions in financial assets, no debt (other than revolving monthly CC balances which are paid in full) and in our entire lives, have never paid a single bill late. The chances of us not paying a CC bill is pretty close to zero. Still, I do not want to fraudulently misrepresent my situation on a CC application.

I am trying to figure out what would constitute my income for the purpose of a credit card application. Some possibilities:
1) (Modified) adjusted gross income on my 1040: This would have been very, very low during the past few years when I was on ObamaCare. Now I am doing large (150k+/year) Roth conversions for the next 5 years, so MAGI would be respectable. This approach really does not seem right though, because doing a Roth conversion does not really indicate my ability to pay the credit card balance.
2) Use the 4% rule. We have millions in financial assets, so this number would be respectable too. This would seem to indicate my ability to pay the credit card balance. I don't know if the bank would accept this if I were asked to provide substantiating documentation.
3) Add up all the dividends, interest, and CG distributions in tax deferred, tax free and taxable accounts. This doesn't seem to be indicative of my ability to pay the CC balance either, because I am invested in index funds which generally don't pay much in distributions. I have not calculated it, but this number would probably be low.

Any ideas? What do others do who are living off of their investments?
Ask the credit card issuer how they define income. Tell the truth. Always.
Also, why would you ever need to apply for a credit card in retirement? I have never heard of this.

Horsefly
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Re: What defines "income" on a retiree's credit card application?

Post by Horsefly » Mon Apr 15, 2019 6:18 pm

I've gotten several new credit cards since we retired, and am having fun with the rewards game. However, I was facing the same delima as the OP. We currently live on a less than 3% withdrawal rate, so I just put for my income something close to 3% of our investment assets. We have a small pension as well, so this is pretty conservative. If they ever challenged me on it I would explain it truthfully.

Chicago60
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Re: What defines "income" on a retiree's credit card application?

Post by Chicago60 » Mon Apr 15, 2019 6:26 pm

It seems to me that what you report on your 1040 is a defensible answer to the question, no matter the sources of "income."

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munemaker
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Re: What defines "income" on a retiree's credit card application?

Post by munemaker » Mon Apr 15, 2019 6:45 pm

Chicago60 wrote:
Mon Apr 15, 2019 6:26 pm
It seems to me that what you report on your 1040 is a defensible answer to the question, no matter the sources of "income."
Including Roth conversions (which are part of AGI)?

orlandoman
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Re: What defines "income" on a retiree's credit card application?

Post by orlandoman » Mon Apr 15, 2019 6:47 pm

Let's say you have '250,000' dollars in a 401k or tax deferred retirement account. This year you take '75,000' out of that 401k ... it's reported to the IRS as taxable income. The cc company never asked about assets, which in my opinion it should ... but you now have $75,000 in taxable income ... maybe plus social security income & whatever other income you may have.
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dcop
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Re: What defines "income" on a retiree's credit card application?

Post by dcop » Mon Apr 15, 2019 6:49 pm

munemaker wrote:
Mon Apr 15, 2019 6:45 pm
Chicago60 wrote:
Mon Apr 15, 2019 6:26 pm
It seems to me that what you report on your 1040 is a defensible answer to the question, no matter the sources of "income."
Including Roth conversions (which are part of AGI)?
That may be getting to point of over-thinking it. Put it on there or don't put it on there. I really doubt they care enough if your retired and you have a long history of good credit. If the conversion is your only income for the year then put it on there.

michaeljc70
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Re: What defines "income" on a retiree's credit card application?

Post by michaeljc70 » Mon Apr 15, 2019 6:58 pm

beyou wrote:
Mon Apr 15, 2019 3:50 pm
michaeljc70 wrote:
Mon Apr 15, 2019 10:36 am
The problem with using a tax return is no income/dividends/capital gains from IRAs would show. Clearly that is income. It is just not taxable income. I would include whatever is on your tax return plus non-taxable income.
They want to know what income you will have access to that you can spend and pay off your bills.
If you are taking RMDs then yes include that, but I would not include an IRA if you are below 60 and not taking RMD yet.
For my kids, I read that if they can reasonably expect $ from parents, that can count.
For myself as a retiree in the future, I would just take my 4% SWR as my income, if that is your SWR.
I can take any or all of my $$$ out of my IRA to pay bills at any time. Or I can pull them from a taxable account. Spending money you have does not make it income. A 4% SWR is a withdrawal and not necessarily income. I don't think they are looking for some number you choose.

This site gives a breakdown amongst a few different cards:

https://millionmilesecrets.com/guides/w ... lications/

In general, it says:

Most banks allow you to include income beyond traditional salaries and wages. You can include things like:

Investment income from stocks and rental properties
Social security
Retirement benefits
Military allowances
Income from others you use to regularly pay your bills if you’re 21 or older

DrGoogle2017
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Re: What defines "income" on a retiree's credit card application?

Post by DrGoogle2017 » Mon Apr 15, 2019 7:19 pm

TravelGeek wrote:
Mon Apr 15, 2019 2:45 pm
adamthesmythe wrote:
Mon Apr 15, 2019 12:45 pm
>So IANAL, but making up a number, whether too high or too low, would not be “true and correct” information.

That's what > < and ~ signs are for.

I use them whenever I am asked for this sort of information. Partly because it would be a real pain to look up numbers.
Try entering “> 100,000” into Citibank’s or Chase’s online application form. It doesn’t accept it. You could presumably write it into a paper form, but I personally haven’t submitted a paper application in probably a decade.

Both of these banks I just checked do have a pop up in their online application explaining what counts as income. For me at this time it’s interest and dividends/capital gains as I am still years away from Social Security. I will calculate that for my brokerage and 401k/IRA accounts and use that going forward.
I did put x00,000 amount and got approved many times. I’m not going down to the weeds. Even when I was employed I put XX0,000 many times. I’m too lazy to look for specific details. If that’s not good enough, tough. Never got disapproved ever. I was just approved with Citibank and Chase.

DrGoogle2017
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Re: What defines "income" on a retiree's credit card application?

Post by DrGoogle2017 » Mon Apr 15, 2019 7:21 pm

JGoneRiding wrote:
Mon Apr 15, 2019 5:01 pm
Quickfoot wrote:
Mon Apr 15, 2019 12:31 pm
I have 15+ credit cards (no balances) and have NEVER been asked for income verification though I am truthful about my income (there is no reason not to be). There are far more concerned about the amount of debt you have and your payment history than your income, I would imagine rather than asking for income verification for a credit card they would just deny your application. I have noticed as income has gone up I've been offered higher credit limits.
I have had a lot of cards too. And never asked for verification but I almost always lie. I agree the only thing a higher stated income has resulted in is a higher limit. And I don't want that! Plus I have w2 income, rental income, investment income and , bonuses that arent predictable. They just want a ball park number.

They also often ask your investment asset amount. I was kind of surprised that the high number was "greater than 50k" that seemed so low and I am a "poor" boglehead
I agree, they just want a ballpark number. That’s why I always put the same amount.

DrGoogle2017
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Re: What defines "income" on a retiree's credit card application?

Post by DrGoogle2017 » Mon Apr 15, 2019 7:23 pm

Chicago60 wrote:
Mon Apr 15, 2019 6:03 pm
Lafder wrote:
Mon Apr 15, 2019 9:17 am
I usually just put 100,000$ Or maybe sometimes I put 200,000.

I figure my real income is none of their business and I am giving an underestimation.

What about using your expenses? Your income exceeds that. Or the amount you deposit into your bank account each year?

As long as you are not being fraudulent, does it matter? If you are inflating your income to obtain debt you are going to default on it is entirely different than a card you are responsible with.

I think using your last employment income sounds ok too.

I am curious what others say.

lafder
Since you asked....if you "put 100,000" or "put 200,000" and that is not accurate, it sure seems like you are committing fraud to me.
Fraud for what? The whole reason they ask for income is to see your ability to pay, it may help them determine your credit line. When I hear fraud, I think of Wells Fargo. A big bank, defrauding customers on purpose. Not a single high level executive is in jail.

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