Thread: High Net Worth vs. Income - Qualifying For A Card

I have always wondered about this.

Say a person is a multimillionaire and has a a million or more in cash equivalent liquid assets like a bank account. Assume they have little or no debt.

Say the person has little income relative to their assets. For example purposes say it’s less than $30k/year.

I know that the standard credit formula, for qualifying for credit card credit, is only interested in income. But clearly, all else being equal, even with no income at all, someone with millions in liquid assets is a better credit risk than someone with few assets but a larger income because the one with the income may or may not continue to receive it while the one with assets already has the money.

So here is the question. Do credit card issuers consider a multimillionaire with that kind of profile a good credit risk and are the willing to issue additional credit on that basis? And if so, how can someone request credit on that basis since there usually doesn't seem to be any place on applications for this information.

Thanks!

Your credit worthiness has more to do with your history - whether you've paid your bills on time and used credit responsibly in the past.

Regardless of how much money you have, you need income in order to spend money. If you've got millions of dollars you will have income just from the interest you earn on it, unless of course you are really stupid and inefficient with your money.

When you apply for credit the issuer often does ask about assets as well as income. This is generally not the case for a credit card but it is for a mortgage or other loan. With a credit card they can check you out in other ways. There are databases they subscribe to that do a fairly good job of knowing how much you make and how much you have. They get it wrong sometimes but in general the information is fairly good.

Originally Posted by DoingHomework

Regardless of how much money you have, you need income in order to spend money. If you've got millions of dollars you will have income just from the interest you earn on it, unless of course you are really stupid and inefficient with your money.

Thanks for your reply. Some of what you said seems sensible, but the part I quoted above doesn't seem to make sense. You don't need income to spend money if you have liquid assets, such as a bank account. Nor will you have much interest relative income at today's rate if those liquid assets are in say a bank account.

If you have a million dollars in a bank account you can spend up to a million dollars right now even if your income is zero. It beats even an salary of a million dollars a year, because you could lose your job tomorrow and never get that million.

The best of the liquid bank accounts are paying about 1% right now (most banks a lot less). That means your million dollars will only earn at most about $10k/year.... not exactly a lot of income all by itself. So if that is your only source of income, I don't think you can get much credit on the income alone. It won't even cover basic living expenses. If your assets aren't taken into account, I doubt you could even get a credit card.

Originally Posted by Smith

The best of the liquid bank accounts are paying about 1% right now (most banks a lot less). That means your million dollars will only earn at most about $10k/year.... not exactly a lot of income all by itself. So if that is your only source of income, I don't think you can get much credit on the income alone. It won't even cover basic living expenses. If your assets aren't taken into account, I doubt you could even get a credit card.

If you've got $1,000,000 in a bank account paying 1% interest then your income will be $10000 per year as you said. You likely will not get approved for a very high credit limit even if you have good credit.

Issuers are first concerned with your credit history - do you responsibly pay your bills on time?

Next is your ability to repay. Do you have a job? Do you have liquid assets? Most applications will ask you for your income. If you say that you have no income, or only $10,000 per year then you probably will not be approved for a very high limit. If you are in the unusual position of having liquid assets but no income, you will probably need to plead a special case. You might be a good credit risk with adequate assets to pay your bills. But since you fall outside the normal parameters you would need to explain.

In a sitaution like the one you've described it strikes me that the best way to to proceed would be with a bank with which you have a relationship and fully understands the financial situation. With a relationship you stand a better chance of having a conversation and not fitting into a formula. It would be a reasonable expectation that someone with a high net worth has a relationship of some sort with a financial institution

The credit report will be relied upon and should in good shape or in a credit history absense, a secured arrangement would likely be needed for borrowing.

Originally Posted by Iroquois

In a sitaution like the one you've described it strikes me that the best way to to proceed would be with a bank with which you have a relationship and fully understands the financial situation. With a relationship you stand a better chance of having a conversation and not fitting into a formula. It would be a reasonable expectation that someone with a high net worth has a relationship of some sort with a financial institution

The credit report will be relied upon and should in good shape or in a credit history absense, a secured arrangement would likely be needed for borrowing.

I believe what @Iroquois said made sense. Someone with that huge amount of money would likely be keeping the money in a bank. Therefore, there is a better chance of being approved for a credit card. Having a good relationship with your bank can make a lot of difference for your financial concerns. I have proven that in the case of my aunt who has a great relationship with her bank for the past 41 years.