The Sneaky Way Your Salary Affects Your Credit Score
By Abbey Stone
Anyone who has applied for an apartment or loan knows the importance of having good credit (and there are a few simple things you can do to help you build that good credit). Most people are also well aware that missing payments or maintaining a high balance can bring your score down. But what you may not realize is that, while it's not a direct factor, your salary can have an impact on your score.
A recent survey by Credit Sesame reveals that women, on average, have lower credit scores than men (621 compared to 630, respectively). And as Refinery29 is quick to point out, this isn’t because women are “bad with money.” In fact, on average, women reportedly had less overall credit card debt than men.
The reason men score higher than women is because, on average, they have higher salaries—18 percent of the women included in this report made $75,000 or more annually, while the same could be said about 23 percent of the men. Higher salaries can help reduce your debt-to-income ratio (DTI), a key factor in your credit score (in Credit Sesame's report, the average DTI for men was 17 and for women was 18). Higher salaries can also lead to higher credit limits, and higher credit limits can help reduce your balance-to-limit ratio, or utilization rate. According to Experian, "a high utilization rate is a strong sign of credit risk, second only to your payment history," and therefore greatly affects your credit score.
As the below graph from Credit Sesame shows, higher credit scores also correlate with higher debt levels. The reason for this, Credit Sesame posits, is that “consumers who can afford to take on more debt generally have higher incomes.” When you make a higher salary (be you male or female), you are more likely to afford the things that tend to require loans—like an education, house, or car—and your credit score rewards you for this (just as long as you make payments in a timely manner and manage your debt well).
Good habits, it turns out, aren't quite enough to get you that killer credit score.