Is It OK to Inflate Your Income on a Credit Application?
Let's play a guessing game. There's a middle-aged businessperson in New York state who once worked in the financial industry and is accused of fraud. Now, thanks to the diligent efforts of the FBI, he's facing 90 years in prison and $3 million in penalties.
Who is he? Wall Street banker? Hedge-fund mortgage bundler?
Nope. The guy facing decades of jail time and multimillion-dollar fines is David Gaylord, a 50-year-old real-estate broker in Rochester, N.Y. His alleged crime: inflating his income on three credit card applications, to Bank of America, Advanta, and Family First Federal Credit Union.
He might have gotten away with it. Millions do. But when Gaylord's finances collapsed, he was forced to declare bankruptcy -- and that's when his troubles really began. The banks that were left holding his bad debt decided to make an example of him. They found his original card applications and pursued charges of fraud.
A few years ago they likely would not have bothered. But now, with their bottom lines under pressure from the sagging economy and the recent Dodd-Frank regulations, banks around the nation are cracking down.
A White Lie, a Bleak Outcome
Of course, fibbing on a credit application is a grand old tradition, as common as padding expenses on your tax return. Research released last July by a company called ID Analytics showed that one in 15 adult Americans has lied on a credit application, about a Social Security number, a date of birth, etc.
The research didn't break out the number of Americans who have bent the truth about their income, but no doubt it's a lot, because income is easy to fudge and hard for banks to verify. Many of the liars are never caught. Those who are nabbed are rarely prosecuted. But some end up sweating under the hot light like Mr. Gaylord.
The irony here is obvious -- and more than a little irritating. A few years ago bankers were winking and nudging and encouraging anyone with a pulse to overstate their income on a mortgage application. Now these same bankers are busily working to send hapless bunglers like Gaylord to jail.
And they could soon be doing it a lot more often. With sophisticated new data technologies at their disposal, it's fairly simple for banks to pull information from a variety of sources, including the IRS, and put together a complete and accurate picture of your finances. And even if they don't take you to court, they can still inflict some serious punishment, such as raising your interest rate, canceling your card, and shooting a large hole in your credit score.
So avoid the temptation to exaggerate your income on your next credit application, or you could end up sharing a room with David Gaylord.
Follow Tim and Tom on Twitter at @timntom.
