Will a little white lie hurt your credit application?
August 17, 2011
By: Scott Van Voorhis
If you're tempted to fib about your income on a credit card application so you can get the best rewards credit card available, well, think again.
That little white lie could put you in the slammer.
Credit card issuers care…about your income
Prodded by federal regulations and mauled by a tough economy, banks and other credit card issuers are suddenly getting very interested in their customers' finances, especially those who start missing payments.
And if your bank or card carrier finds out you lied on your credit application, you could find yourself facing criminal charges.
Just take the case of David Gaylord, a down-and-out real estate broker in upstate New York.
According to the indictment against him by the U.S. Attorney's Office for the Western District of New York, Gaylord allegedly inflated his income on three credit card applications and now faces up to 90 years in prison.
Credit card application fraud
While banks traditionally have not pursued criminal charges in these cases, the Gaylord case shows that they can if they choose to, notes Kim McGrigg, manager of community and media relations for Money Management International.
"Lying on a credit application purposefully is fraud," McGrigg says. "It may not be prosecuted aggressively, but the potential is too great for people to risk being caught."
Not convinced yet? Here are more reasons to be wary of bending the truth in pursuit of plastic - and other common lies to avoid.
Think through the consequences. Maybe a significant other just lost a job or your family is facing a major medical expense. You sure could use some additional credit to float your finances until you make it through the crisis. Yet even if the bank gives you the best credit card out there, if it's all based on a bogus income number, what makes you so sure you'll be able to make the payments? If you are later forced to file for bankruptcy, you are opening yourself up to potential prosecution. (That, apparently, is how Gaylord got caught.)
Faced with having to write off thousands in bad debt, the bank may suddenly begin to get curious about your original credit card application. "If you are lying on a credit card application, you are probably applying for credit you can't afford," McGrigg opines. "You are setting yourself up for failure. You are not only committing fraud, but you are taking on risk you really can't afford to take on."
Banks are getting better at spotting cheats. Armed with increasingly sophisticated databases, it's easier than ever for bankers to pull up all your background financial data - and connect the dots. A quick check into your IRS records will likely get at the truth of what you've really been earning - and how it matches up with you've stated on your credit application.
The Credit CARD Act of 2009 is forcing even the best credit card companies to look more carefully at the income you claim on your credit application. That means tapping into various data sources to get a more complete and accurate view of your true financial situation. "If they want to spend the money, they can find out overnight," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies.
Other lies also spell trouble. It's not just lying about your income on a credit application that can land you in big legal trouble. Anything that misrepresents your ability to make your credit card payments could put you in jail as well. One common fib is to say you are employed, when, in fact, you just recently got laid off. OK, maybe you are confident that you'll land on your feet in a few months - but that won't change the fact that you misled the bank on your credit card application.
The same goes for fudging your marital status. If you are divorced, or about to be divorced, you need to come clean about that as well. "If you want to say there are various categories of lies, well, the law says a lie is a lie is a lie," Jones says.
Even if you avoid the law, you could still face consequences. Let's say the bank finds out you've lied on your credit application, but opts not to go to the trouble of hauling you into court. That doesn't mean you're home free. Your interest rate could spiral upward, or worse, you may simply lose your card altogether. "If you falsify your credit application, there is very little you could do," Jones says.
McGriff sums it up: "All lying purposefully on a credit application is fraud."
As it gets tougher to get credit, inflating your income on a credit card application may seem tempting. But if you can't keep up with the payments, you could open yourself to a world of trouble later, especially if your bank suddenly takes an interest in the details of your case. So when it comes to applying for a credit card, honesty is not just the best policy, it may also keep you out of jail.