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I was surprised after I retired when I could not get an increase in the credit limit on a credit card I'd held in good standing for many years. After I retired, the only income that qualified for a credit card or a credit limit was my social security income (so explained the card representative). In fact the representative told me that I was not qualified for current credit limit, and that they would be adjusting it downward to reflect my "lack" of employment.

I am now taking my RMD (required minimum distributions) and paying taxes on those distributions just as if I were being paid by an employer.

Do credit card companies recognize RMDs as income just as if they were being paid by an employer?

Chris W. Rea
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BobE
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3 Answers3

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I feel like this has nothing to do with income, and as such RMDs will not really help or harm you.

After a person passes, credit card companies are unlikely to collect any outstanding balance. Debts cannot be inherited, however, assets can be made to stand for debts. Many assets pass to heirs without the probate process and in some cases all of them pass this way. This leaves creditors with nothing and having to write off the balance.

Even if assets do pass through probate heirs may dispute the creditors. In that case credit card balances may not be high enough justify hiring a lawyer to fight for payment; or, if they do the judge may be unsympathetic and offer nothing or pennies on the dollar.

The bottom line is that they probably see you, or your demographic, as a poor credit risk and reduced their exposure by lowering your limit. While that is not what they told you, they probably have to carefully structure what they say to avoid any discrimination claims.

Pete B.
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My understanding is that credit card companies are allowed to accept retirement income as part of the income that would qualify you for credit.

The Consumer Finance Protection Bureau issued a final rule amendment to Regulation Z (the regulations around Truth in Lending Act) in 2013 in response to some of the tightening of credit that resulted from the Credit CARD Act of 2009. The final rule allows for credit issuers to "consider income and assets to which such consumers have a reasonable expectation of access." (Page 1) On page 75, it outlines some examples:

Other sources of income include interest or dividends, retirement benefits, public assistance, alimony, child support, and separate maintenance payments.... Current or reasonably expected income also includes income that is being deposited regularly into an account on which the consumer is an accountholder (e.g., an individual deposit account or joint account). Assets include, for example, savings accounts and investments.

Fannie Mae explicitly mentions IRA distributions in its Documentation Requirements on mortgage applications. For them, they require that the income be "expected to continue for at least three years after the date of the mortgage application."

Lenders can reject or lower your credit limit for just about any reason that they want, but it seems appropriate for you to include your retirement distributions in your income for credit applications.

Ben Miller
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The actual policy will vary based on the specific bank. But, if I were in your shoes I'd include RMDs in my stated income for credit card purposes.

quid
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