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Extra1/15/2010 1:52 PM ET

Who's peeking at your paycheck?

Financial companies are no longer content to take your word for how much you make. Income estimates from credit bureaus will soon influence your access to credit.  

By The Wall Street Journal

You may think your income is private information. But the credit bureaus may have your number.

And starting in February, your income -- as estimated by the bureaus -- may be used to help determine whether you get a new credit card.

The Federal Reserve just issued its final rules related to last year's Credit CARD Act, which, among other things, will require credit card companies to consider an applicant's income or assets and current debts before approving credit. To provide flexibility, however, the Fed said that issuers can use "a reasonable estimate" of income or assets based on "statistically sound models."

In hopes of such a decision, the three big credit bureaus have been updating or rolling out products that seek to estimate consumers' incomes, based on information in their credit reports, such as the size and age of their mortgages or the size of their credit limits.

The products also are responding to banks' efforts to tighten credit standards in order to reduce losses and risk.

"We look to fill in the blanks where they need the blanks filled in," says John Cullerton, vice president of product management for Equifax, a credit bureau headquartered in Atlanta.

Credit card companies can then double-check what we have long reported ourselves against these estimates -- which often don't require consumer consent and aren't available to consumers for review.

Indeed, lenders of all kinds are starting to collect ever more financial information from us and about us.

Last summer, Fannie Mae began requiring mortgage lenders to verify borrowers' incomes by checking income-tax filings. Instead of simply providing pay stubs and bank and brokerage account statements, homebuyers now are being asked to provide copies of their tax returns and are also required to fill out an Internal Revenue Service form known as 4506-T (.pdf file) that allows the IRS to release their tax filings to lenders.

Credit scores, which have long been a key factor in whether you get a loan or a credit card, may not be sufficient for many future credit decisions.

With the new credit card law requiring credit card issuers to consider a customer's ability to pay before opening new accounts, the Fed had proposed requiring people to report their own income or assets when applying for credit.

But retailers feared the proposed rules would squelch their ability to instantly open credit accounts at the cash register because shoppers wouldn't want to disclose such personal information in the middle of a store. Both retailers and the credit bureaus asked the Fed to allow them to use alternatives such as the credit bureaus' income estimations instead.

Card companies already are asking for more detailed information in their online applications. Capital One is asking applicants to disclose how much they pay in mortgage or rent payments, how much they have in bank accounts and how much is in their investment accounts. Bank of America and JPMorgan Chase are requiring household income estimates.

In the past, the companies relied on consumer-reported income information. But lenders already are starting to use Experian's Income Insight product to verify what individuals report, says Brannan Johnston, vice president of income and deposits for the Costa Mesa, Calif., credit bureau.

Continued: Estimates may prompt requests for more details

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