//Why You Shouldn’t Exaggerate When Applying for Student Loans or Refinancing

Why You Shouldn’t Exaggerate When Applying for Student Loans or Refinancing

Refinancing rates from 2.54% APR. Checking your rates won’t affect your credit score.

There are many situations in which you might feel tempted to exaggerate your salary or at least round it up — say, when palling around with friends or even during a job interview.

Think twice, however, before inflating your income while applying for a loan or other form of credit.

Income information on your student loan refinance application

To qualify for student loan refinancing, which consolidates your education debt at a potentially lower interest rate, you must prove you have the credit history and debt-to-income ratio to repay your new loan.

Not all lenders require you to hold a traditional, full-time job, but many banks, credit unions and online companies do set minimum income requirements. You must earn at least $24,000 per year to receive quotes from LendKey, for example.

Your income — no matter where it comes from — helps to determine your interest rate when you attempt to prequalify for refinancing (and submit to a soft credit check).

At CommonBond, for instance, the prequalification application asks for your estimated annual pre-tax income, excluding retirement account savings. Similarly, Earnest requests your yearly income in addition to an estimation of your savings and investments.


Image from Earnest as of February 26, 2019


The problem with estimating incorrectly — or exaggerating — any of your finances on this initial application is that you’ll be quoted an inaccurate rate. Supplying a salary that’s far too high might get you qualified, but your initial quote could carry a much lower rate than what you’ll be eligible to receive in the end.

Being imprecise will also come back to bite you when submitting your formal application (which will subject you to a hard credit check).

You’ll be asked again on your formal application to provide the details of your income, plus supporting documentation. That’s when an underwriting team will scan your pay stubs or tax returns to confirm your earnings.

Supplying income information to credit card issuers

You might have noticed that your credit card company occasionally asks you about your income when logging into your account online. You might see a page that resembles this one:

Citigroup Inc

Image from Citigroup Inc


The CARD Act Of 2009 enables issuers to use this quick Q&A to verify whether you qualify for a card or are eligible to receive a credit increase. (At Citi and other issuers, you can typically update your income information voluntarily by clicking on your account profile.)

“If the stated income is not far off, the creditor may never find out,” said Nathalie Noisette, the founder of Credit Conversion. “In the case of higher limits, the issuer may ask for a W2 as proof of employment or income. Issuers may also ask for bank statements — upwards of three months — demonstrating income during that period of time.”

In the past, you might have been reticent to provide your credit card company with an accurate income figure, thinking it’s none of their business. Keep in mind, however, that the number you input won’t just affect whether you receive an occasional sales pitch for another card. It could also increase or decrease the credit limit on your current card.

Exaggerating your income to qualify for a new card could also have consequences. Most seriously, you could be found guilty of loan application fraud, resulting in fines or even jail time, Noisette said.

The more common consequence is a difficult repayment. If you exaggerate your income and borrow more than you can afford to repay, interest will stack up.

Plus, if you’re seeking repayment relief — or worse, end up in debt collections — your creditors might point to the higher income you once claimed to enjoy. That could erase your leverage in a debt settlement negotiation.

Accurate information on credit applications is always best

No financial professional or institution expects you to rattle off your gross annual income, net monthly salary or pre-tax household earnings as if you have them memorized. These exact numbers take some time to calculate.

Many loan prequalification applications ask instead for your best estimate. You’ll be pushed to provide a harder number once you get to the formal application. At that point, you’ll have to dig up your pay stubs or tax forms anyway.

No matter where you are in the loan or credit card application process, always provide consistent estimates of your income. If you’re unsure about how to estimate your earnings or what an application is seeking, speak with the lender or credit card issuer’s customer service.

Better to ask for clarity now than forgiveness later.

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