The good intentions of the Credit Card Act may be a double-edged sword that prevents some responsible consumers from getting access to credit. While the act will stop hefty charges, double-cycle billing, and interest rate increases without warning, it will likely affect small businesses and financially-strapped consumers who are unable to verify their income.

Before providing credit, credit card companies now need to determine the applicants “ability to pay”. That is, their income vs. their debt. According to Credit Expert John Ulzheimer, “We’re headed down the road where if you can’t verify your income, you can’t get a credit card.” This development could have a very negative effect on those in the most need of credit.

Based on a research completed by Consumer Reports, around 30 percent of consumers have a total credit card debt of $10,000. 44% of the people in this group admitted that they wouldn’t be able to survive for six-months without credit cards. Medical costs, car expenses, and home improvement are the top factors that contributed to the high balances.

How Are Incomes Verified Now?

Credit reports today don’t include individual income. That raises the question, “how will my income be verified?” The Federal Reserve has passed a rule related to the Credit Card Act. This allows lenders to estimate your income based on approved statistical models. The three credit reporting agencies are already offering tools that provide a ballpark income. Using the same types of tools may soon become standard practice among credit card companies too.

The data included in the estimation process includes outstanding loans, their opening date, the type of account, and the person’s ability to repay. Chet Wiermanski from TransUnion said that “By no stretch of the imagination are these estimates considered to be extremely precise.” At best, the ballpark figure they provide will help lenders identify applicants who are misrepresenting their income.

Expect these developments to affect the amount of credit extended to you. It is advised that you look closely into the type of income verification you’re agreeing to when you apply for a credit card and other forms of credit.