Stay-at-home moms and dads may soon find it more of a challenge to get the best credit card in their own name.
The Federal Reserve recently provided additional clarification of the Credit CARD Act of 2009, and issued new guidance to credit card companies that will make it almost impossible for non-working spouses to have their own credit card.
Credit card holder must have income
The new ruling requires credit card companies to look at individual income for people applying for individual credit cards. They are no longer allowed to consider total household income to issue credit. Now, stay-at-home spouses will not qualify for credit cards if they do not have specific income themselves.
Stay-at-home spouses will be required to build their own credit history and show proof of individual income when applying for a new credit card. The Federal Reserve issued the ruling in order to ensure that the person applying for a credit card actually has the means to pay the bill when it is due, thus reducing the likelihood of default.
New rules take effect in October
Credit card companies are required to begin complying with the new rule starting in October 2011, though some credit card companies have already begun implementing the policy.
If you’re a stay-at-home parent or spouse and you cook, clean, and care for the home while your significant other brings in the bacon, that may work perfectly well in practice. But in the world of consumer credit, your credit card company doesn’t care how much your home-making skills are worth. You can’t pay off a credit card bill by offering to watch some watch the credit card issuer’s kids, change their car’s oil, or prepare them a roast.
So as the new guidelines take effect, how can you build and maintain your own credit history if you don’t have a pay stub in your name?
Three ways a non-working spouse can get credit
Here are three ideas for how a non-working spouse can gain access to credit and build a solid credit history.
- Apply for a joint credit card. If you’re a stay-at-home parent and your spouse or domestic partner is employed, you can get credit in your name if the two of you sign up for a joint credit card account. Credit card companies will use your combined income to determine if you qualify for credit. Keep in mind that both of you will be held equally liable for the debt. Of course, this can play havoc if you get divorced and half the debt becomes yours and you still have no income.
- Consider a secured credit card. Stay-at-home parents can get a secured credit card in their name very easily. This may be one of the simplest and most efficient ways to establish your credit history. Secured credit cards are pre-loaded with cash that you send the credit card company, and your credit limit is restricted to the amount that you deposit.
- Become an authorized user. Being an authorized user on your working spouse’s credit card can help you get access to credit. While the legal liability for any incurred debt resides with the cardholder, the account will in most cases appear on the authorized user’s credit report, thereby helping (or hurting, as the case may be) their credit score.
Once the new rules take effect, stay-at-home parents and non-working spouses will still have access to credit. That being said, the above workarounds fall short of having your own credit card with rewards in your name, and don’t provide the necessary means for those with no reportable income to obtain the best credit cards.
What do you think? Is the Federal Reserve going too far? Is it reasonable for credit card companies to require individual applicants to prove that they can pay their own credit card bills? Or, is using household income on a credit application sufficient? I’d love to hear your thoughts in the comment section.