Credit Cards Tougher to Get for Stay-at-Home Parents

As a stay-at-home mom, I cringed when I read about a new Federal Reserve regulation that severely restricts non-working spouses’ access to credit. The new rule represents a blow to the financial independence of stay-at-home moms and dads in the U.S.

Enacted on Oct. 1, 2011, the crux of the new regulation is the distinction between household and individual income. Household income can no longer be considered when analyzing an applicant’s creditworthiness. This change may prevent many stay-at-home parents from being able to open a credit card account.

While I’m not a big fan of credit cards in general, knowing that I probably no longer qualify to open an account in an emergency is a little alarming.The new rule dictates that only the applicant’s individual income may be taken into account by the credit card company when deciding whether to grant credit. So that means that a stay-at-home spouse with no income or only a small income (like me) would probably not qualify, even if the household income is substantial.

For those seeking to establish a credit history, improve a credit score, or gain financial independence, this is a knee-buckling change.The new rule is part of the CARD Act, the Credit Card Accountability Responsibility and Disclosure Act of 2009, discussed in detail in this creditcards.com article. The CARD Act makes the ability to pay off debt the paramount consideration when issuing credit. It is designed, in other words, to protect consumers from themselves. The act’s goal is to prevent cardholders from racking up mountains of debt that they can not repay effectively. Sounds good, right?

Living in a Material World

As we all know, even if you are opposed to making purchases on credit, having a credit card is virtually unavoidable. From simple transactions like renting a DVD or making a car reservation, to major transactions like qualifying for a business loan or a home mortgage, having a credit card is essential.

This change, although intended to protect consumers in general, places stay-at-home spouses at a distinct disadvantage.Imagine the case of a newly divorced or widowed spouse trying to get through the day without a credit card. In many cases, these people may have adequate resources, job skills, and assets to qualify for credit, but without individual credit history, a sudden change in marital circumstances could leave them high and dry, credit-wise.

This amendment also represents a major setback for stores that offer on-the-spot credit with a simple form filled out at the register. No longer will big retailers like Target, Home Depot and Kohl’s be able to offer customers credit cards at the point of sale—and they are not happy about it. While this rule may help curb impulse purchases, for consumers like me, there is a major downside.

Living abroad, I visit the United States a few times a year and normally arrive with a long shopping list in hand. Many items are dramatically cheaper in the States than here in Costa Rica, and other items are simply not available here. Last summer I racked up a big bill at Target, applied for the instant credit card, pocketed the 10% sign-up discount, and then zeroed-out the balance on the next bill cycle. Under the current regulation, I won’t be able to do this unless my husband is with me. Not a nice feeling.

Charging Ahead

If you didn’t apply for your own credit card before the Oct. 1 deadline, all is not lost. There are still several ways for a stay-at-home spouse to obtain a credit card, albeit with restrictions and caveats:

Authorized User: A non-income-generating spouse or child can be added as an authorized user on an existing account without being legally responsible for repayment of debts incurred on the account. The authorized user status does help establish credit history and so this is a workable option for many consumers.

Co-Signer: Just the word “co-signer” conjures up all sorts of credit horror stories, but for some people, it may be the only option. As a co-signer, you are legally responsible for debts incurred, so proceed with caution if you choose this route.

Work It: If a stay-at-home spouse has even a small income from a home-based business or part-time job, this may be sufficient to obtain a credit card with a very low limit. Properly managing a credit card account with a low limit can be a good way to establish credit history.

Hang On: If you have an existing credit card in your name, but anticipate a break in employment for any reason, consider zeroing out the card, but leaving the account open. Once your income ceases, it will be difficult to obtain a new account in your own name—so don’t close that account!

Note: In community property states such as California, Texas and Louisiana, different rules apply that may allow a non-earning spouse to receive credit in his or her own name. On the flip side, non-earning spouses may also be held liable for debts accrued by their partners.

This article was written by contributing author Laurel Gray.

Comments

  1. In the cases of stay-at-home spouses who are recently divorced or widowed, does this really change anything? They are now a household of one rather than a household of two, so their individual income is their household income. (Or is that not right?) I think everyone needs to take responsibility for their own credit worthiness before it becomes an issue. The same thing recently happened to students and recent grads with the CARD Act. I know people who got through school without any opening any credit cards, taking out student loans, or paying any bills that were not through the school. They didn’t think about the fact that their credit would be checked for things like renting an apartment, shopping for a new car, etc and suddenly found themselves trying desperately to find someone willing to give them a credit card. It takes time to build up credit, so I think everyone, including stay at home spouses, need to think about that before something bad happens. Have joint credit cards or be an authorized user. That may build it up enough to be added to the next car loan or mortgage. If you have your credit history built up, then if you find yourself needing new credit in your own name all you have to worry about is the income portion, which can be fixed much more quickly.

  2. I think this rule makes complete sense. If you stay at home and earn little or no income, become an authorized user of a credit card that the breadwinner qualifies for.

    that seems simple and makes sense, no?

  3. I think that non working spouses should reconsider their situation, as the above is just one of the barriers you will face. The stay at home spouse will never be the owner of the 401K plan, the bigger social security check, and anything loan related. There are many careers you can do part time to keep your footprint in the working world. Children benefit from being around other children in organized preschool settings.

    • You really have to run the numbers if you want to be a “Go to Work” Mom- (the phrase “stay at home” rings too caninish for my beautiful wife) What we found out after child care- fuel- extra cost for meals when we just wern’t into cooking that day- (not too mention added stress) really ate away at any assumed revenue from a 2 paycheck household we thought were achieving- realizing that is the trend though.
      As far as Children benefit from association with other children- again – to a point. If your a parent whose values are not consistent with those you associate with- you wont be happy with those results.

    • This seems a little harsh. I am a working mom by choice but I have many friends who are SAHM (and know a number of SAHF as well) and are right where they want and need to be. Not everything in life can be monetized. Children also greatly benefit from being with their parents. :-)

      I do believe that the items you laid out need to be considered, though.

  4. In your Target example what kept you from using a debit card? Apparently you had saved up the money. It is the credit reporting companies that have established that a credit rating is of such importance. As the economy tanked, almost everyone’s rating went down. I don’t use credit cards, I use debit cards as I am a cash basis consumer. My generous emergency account is fully funded…and my house and car paid for. I have no consumer debt…I probably have no acceptable credit rating either…but I don’t need one.

    A credit card offers little more as a handy tool then a debit card does and generally carries a higher cost. If one relies on a credit card instead of an emergency fund then they are already overextended. If I were part of a partnership…which I’m not…then I think my focus would be to have my own emergency fund in my name. In any emergency a pile of hundred dollar bills always works…and they are just wonderful to prevent impulse purchases. You think about it more when you have to part with them then just whipping out the plastic that won’t come due until ‘tomorrow’.

    • Re: the Target example – the 10% new sign-up discount would not have been available if she had used a pre-existing debit card for the purchase.

  5. You wrote:

    “Authorized User: A non-income-generating spouse or child can be added as an authorized user on an existing account without being legally responsible for repayment of debts incurred on the account. The authorized user status does help establish credit history and so this is a workable option for many consumers.”

    If this is an option, I have no idea why you are even complaining about the new regulation in the first place. I don’t see what the problem is, ESPECIALLY since you can still build your credit history without being responsible for repaying the debt – which you really can’t do on your own anyway if you have no income or low income.

    Your reasoning is quite flawed.

    This part of your argument:

    “So that means that a stay-at-home spouse with no income or only a small income (like me) would probably not qualify, even if the household income is substantial.”

    sort of contradicts the paragraph you wrote above.

    Why would you want your own credit card, which you could be solely responsible for, if you couldn’t pay it without your spouse anyway?

    • The first reason is that my spouse travels for business constantly, and if there were some calamitous event which required me to open a credit card on the spot, I would be unable to do so if he were out of town. We would still pay the balance as a family, but the new act restricts my ability to respond to an emergency.

      The second reason is that when I worked FT, I earned more than my husband and have contributed heavily to our current financial position with my own assets. The fact that I no longer have a substantial income does not mean that I am not solvent.

      • For your first point, if the emergency is that urgent, is it even possible to get a credit card that quickly? When I’ve applied for credit cards (either online or over the phone) I had to wait a week or two for it to arrive in the mail before I could use it. I don’t know how long it would take if you went to get one through a bank, but my atm/debit cards have always had to be mailed as well. I would think if you were that desperate, it would be faster and easier to go the bank and ask for a line of credit, which wouldn’t be subjected to the CARD Act.

        For your second point, I do think there should be an exception to the income rule if you can prove that you have sufficient liquid assets.

  6. This was interesting. I never knew a SAHM or SAHF could get credit cards using household income. I understand that it may feel awkward having to get your spouse to sign for a card but it makes business sense. If a person isn’t earning income, why would they be able to charge debt?

  7. While it may not fix the issue of establishing credit, prepaid debit cards can be a solution. These cards can be loaded with money and it is deducted as they get used. You can use these cards to do the things you mention in the article. They work just like a credit or debit card so you can rent DVD’s or a car.

  8. But does the act prevent you from opening a line of credit at a financial institution? You get a more manageable interest rate and you can continue to build your credit score that way.

  9. Women’s rights groups should be up in arms about this move. So should everyone else.

    My ex-wife had a bankruptcy on her credit, but earned a decent income. My credit was golden, but I didn’t make much. Under this new system, our rates would have been atrocious if we could have gotten credit at all.

    This helps no one but the credit card companies.

    • Why would women’s rights groups be up in arms about this? The regulation doesn’t say that a woman can’t get a credit card without a man to vouch for her, it says that an individual can’t get a credit card without proof of sufficient income. Also, I see nothing that says the combined scores and income wouldn’t be considered if you were applying for a joint account.

      This is not a women’s rights issue. While there are more stay at home mothers than stay at home fathers, this legislation is not aimed specifically at non-working spouses. An example of where else it applies: a college student who is still dependent on his/her parents and is thus a part of their household. If you allow the consumer to determine the extent of their household on the application, college students or other young people living with their parents could technically include their parents’ income on the application, giving them access to much more credit that they could handle in actuality.

      As for this helping no one but the credit card companies, the new rules also further limit fees and interest rate hikes. http://www.federalreserve.gov/newsevents/press/bcreg/20110318b.htm

        • The regulation does not say that. If you want to read it yourself, there’s a PDF available in the link in my previous response. The point of the regulation is to stop people from opening individual credit cards using an arbitrary definition of “household” that may or may not be relevant. If I am applying for a card to use for household purchases, it makes sense to use the household income. In that case, it would also make sense to make it a joint account sense both parties use the items being purchased and both should be responsible for paying for them. If I am applying for a card to use for my own personal (discretionary) purchases which I will be paying for with my own money, why should I get to use my (theoretical) spouse’s income to qualify?

          The regulation addresses several points relating to this. The relevant legislation is:

          “Furthermore, the Board is revising comment 51(a)(1)–4 to clarify that a card issuer may not use the income or assets of a person who is not liable for debts incurred on the account to satisfy the requirements of § 226.51, unless a Federal or State statute or regulation grants a consumer who is liable on the account an ownership interest in such income or assets.”

          That is a perfectly reasonable requirement. Furthermore, the text of the legislation actually specifically addresses the situation of both stay at home mothers and low income families:

          “Furthermore, for the following reasons, the Board believes that married women who do not work outside the home and low-income families will continue to have access to credit. First, the final rule permits card issuers to ask for ‘‘income’’ or ‘‘salary’’ on their application forms and to use the information provided by applicants to satisfy the ability-to-pay requirement. As noted above, some card issuers currently request ‘‘income’’ or ‘‘salary’’ on their applications, while other issuers request ‘‘household income.’’ The Board is unaware of any evidence that card issuers who request ‘‘income’’ or ‘‘salary’’ extend less credit to married women who do not work outside the home or to low-income families than issuers that request ‘‘household income.’’

          “Second, nothing in § 226.51 prohibits card issuers from considering the combined incomes of spouses or other household members who apply for credit jointly. Indeed, comment 51(a)(1)–6 currently states that, when two or more consumers open an account jointly, the card issuer may consider their collective ability to make the required payments. Thus, a consumer who does not have sufficient income to open a credit card account independently can open an account by applying jointly with a spouse who has sufficient income. The Board understands that a joint application could be inconvenient or impracticable in certain circumstances, such as when a consumer’s spouse is not available to apply in a retail setting. However, the Board does not believe that these concerns warrant permitting issuers to extend credit based on the income of persons who are not liable on the account.”

          There are more points addressed in the regulation (it’s 94 pages, so there had better be) but I won’t continue to quote them to you unless you actually want to discuss it.

          • I don’t find the justification for the regulation to be all that credible.

            Take the first point. As a former stay-at-home dad I was advised, by the credit card company (or possibly their agent) to include household income in the “salary or income” line, even while I put “Homemaker” as my occupation. So while credit card companies may already have “income” rather than “household income” on the form, that’s just the name of the field – it’s not how it is actually used.

            Okay, so get a joint account for household stuff. Okay, but that requires two cards, both of which have an annual fee. It requires a hit on both of our credit reports. And it means we’re going to get a limit and rate based on the worst of our credit reports.

            As I said before, that would have left us completely without credit (or at best one of those skeevy secured cards with an annual fee).

            I’m willing to say that maybe in practice it won’t be this dark, but I’m finding that unlikely. After my separation I had no income, alimony was not determined yet and so my income was $0. I did not include household income because I knew I was going through a divorce. (I have since learned I probably could have claimed a certain amount of alimony, but that’s irrelevant to the point.) I was still legally married. My credit was and is good.

            So, basically, what you are telling me won’t happen is exactly what did happen to me. I applied for a credit card while married but unemployed, without including my spouse’s income, with good credit, and was rejected.

          • “Okay, but that requires two cards, both of which have an annual fee.”

            Why would you get a card with an annual fee if that was a concern? There are plenty out there that don’t have an annual fee.

            “And it means we’re going to get a limit and rate based on the worst of our credit reports.”

            No, you would get a limit and rate based on your combined reports. It wouldn’t be as good as combining only her income with only your credit score, but the fact is that one of you ruined their credit and the other had no income, so individually you had not proven that you deserved or could handle credit.

            “So, basically, what you are telling me won’t happen is exactly what did happen to me. I applied for a credit card while married but unemployed, without including my spouse’s income, with good credit, and was rejected.”

            Where did I say that wouldn’t happen? You applied for an individual card with no income, and you got declined. That’s exactly what should happen. If it were me, I wouldn’t loan money to someone who couldn’t show me any means of being able to pay it back.

            I’m not arguing that this is super great legislation, though I don’t personally take issue with it. You said that women’s rights groups should be up in arms about it, and I’m arguing that it isn’t discriminatory in general, and isn’t discriminatory against women in particular. Yes, it will negatively affect people. Yes, stay at home parents are included in the group that will be affected. Yes, the vast majority of stay at home parents are women. That doesn’t make it discrimination. This is legislation designed to keep credit cards out of the hands of people who cannot provide proof that they have the income to pay it off. As others have pointed out, banks can issue lines of credit to individuals without being subject to the CARD act and would be able to see you bank accounts and spending habits to make more informed decisions. You also have other less risky (to the CC companies) options like secured cards. (I don’t know why you think they’re skeevy, but I don’t believe they all come with an annual fee.) If you have the money, just not official income, debit cards and prepaid cards can serve the same purpose in the majority of situations.

          • I have to agree with Penny on this one. You married someone who was apparently unable to handle finances and then you all made a decision to have the one person who could handle finances not work. It isn’t my intent to be mean but you all don’t sound like great candidates for credit. Banks have a rate to refuse credit to people who have shown they are not able (willing?) to manage their finances wisely. In my opinion, that is justified.

          • There is considerable backlash from women’s rights groups and pushback from Congress as well:

            U.S. Reps. Carolyn Maloney, D-NY, and Louise Slaughter, D-NY, both among the principal authors of the CARD Act, said the rule “goes beyond the intent” of the law and “represents a serious risk for women in abusive domestic partnerships.”

            “Women trapped in abusive marriages may be unable to work due to a controlling spouse, a hallmark of relationships characterized by domestic violence,” Maloney and Slaughter told the Federal Reserve in a letter as it was considering the rule. “The availability of an independent credit card may represent her best chance at establishing independence and a path out of a dangerous relationship.”

          • Laurel, I don’t really follow the logic on that. I feel like giving a woman a credit card in a situation like that is like putting a band aid on a bullet wound, except that the band aid won’t then start chewing off your leg. Either the abusive husband would be fine with her having a credit card and help pay it off, in which case it might as well be a joint account, or she would be taking out debt that she has no hope of paying back. It could get her into a more dangerous situation with her abuser in the worst case (by being found hiding things or making plans to get away) and damage her credit score in the best case scenario.

            If the scenario is that she has just left and needs a way to buy necessities while she gets on her feet, then using a household income that includes her (now estranged) husband I feel that’s disingenuous.

            In my opinion, what those women need is not a credit card, it’s HELP.

            (I don’t have much knowledge or experience with abusive relationships, so if you could give me some sources that better explain how a credit card would help I would appreciate that. With the limited information I have, though, I just cannot connect the dots.)

  10. Laurel, I definitely love your tips. Although this is a frightening change, especially with more parents choosing to stay at home, or having the choice made for them in the event of a job loss. Cosigners and authorized users can help with the actual use. As for building credit, hopefully there will be some easier ways.

  11. Tania – my career is to raise and teach my children. I volunteer in areas that I am passionate about. That keeps my foot in the door regarding a future job but I have no need to pay some person to stand in a room and “watch” my child play with other children. My children benefit from being around other children in an organized playgroup setting in my home with other stay at home mothers.

    I need not worry about a 401K as I can (with “my husband’s money”) fully fund a Roth IRA. I don’t worry about social security either because a) it probably won’t be around by then and b) my fully funded retirement fund will be more than enough.

    Loans are actually able to be underwritten and approved whether or not you have a credit score. Personally, I could care less whether or not credit cards are available to anybody. Cash should be paid and layaway can always be used. As far as any future mortgages (hopefully we don’t have any) I guess my husband will be the sole owner.

    • When my husband and I purchased our home, my credit was mediocre, while his was stellar. The broker recommended that he apply solely for our mortgage so we could get a competitive interest rate. My husband was approved for the loan, but both of our names were on all of the closing documents and deed.

  12. Here’s another side of the issue: my former SIL, who didn’t work, could open up credit card accounts based on her household income everywhere she went. And she did. Every so often, my brother would get hit with a new slug of bills from cc’s he didn’t know existed. Needless to say, he was on the hook for paying them. That’s why she’s my former SIL now.

  13. I’m wondering whether this change in legislation actually was aimed at SAHMs and SAHDs. If you could previously include anyone who lived at the same address as “household income”, then roommates could include the income of everyone living in the house to qualify for more debt than they could individually afford. Ditto for situations (esp. in the current economy) where people are renting out extra rooms in their house to tenants.

    For the most part, this legislation won’t really affect couples. The non-working spouse just becomes authorized user. I know at least with AmEx, the credit gets reported to both the cardholder and authorized user’s credit reports. In the “emergency” situation above, I agree that opening a LOC on a joint bank account would be a much faster way to access funds.

    • That’s basically the conclusion I came to. I think the way the credit card applications were written previously (with household income) was intended to be used by married couples and others in situations with shared finances, but other people were taking advantage of it in cases where household income didn’t really apply. It will obviously negatively affect some people who were following the rules as they were intended, but not everyone will be hurt by this and I can’t really find myself disagreeing with it. It makes a lot of sense to me.

      My full thoughts on the matter were posted this morning: http://pennypinchingprofessional.blogspot.com/2011/10/credit-card-act.html

  14. I can’t believe some of the comments on this site. Are you kidding me? This new law is complete balderdash. For example, if a stay at home parent has always paid their bills and has solid credit they should be entitled to their own credit card. Compare this scenario to an irresponsible person with a job who over-spends and defaults on their loans -oops sounds like the people who got us into this economic mess. Let’s remember what caused the problem we’re in and it wasn’t responsible stay at home parents . Once again another ridiculous law to benefit corporations. The nasty side effect, less stay at home parents, more latch-key kids and more social problems in the future.

  15. Dear Penny,
    Let me educate you a little. Women in relationships with controlling men generally want to get out . By removing a woman’s ability to get a credit card you will effectively prohibit her ability to build credit. Without good credit it is very difficult to do anything– she can’t buy her own house (should she decide to leave), employers may check her credit score (in this competitive job market they may choose the candidate with better credit) and so will landlords. And then there’s the psychological impact of not being able to function independently. What if the spouse refuses to supply a credit card? What if the stay at home parent needs the card in an emergency for their child but cannot access it due to a controlling spouse? Based on your posts I doubt you will change your mind but let me tell you quite simply you are WRONG. Take it from someone who knows, get that into your brain and learn how to think for yourself and really see what’s going on.

  16. I had no idea that this law was on the books. And it happened nearly a year ago. Amazing.
    Obama and his Czars have really taken over everything, and most of it is hidden– like this situation, ready to come out like the War of the World drones when Obama doesn’t get his way (and/or re elected). I am sure that this gesture was meant as yet another disavowal of the family unit. Everybody work–workers are easy to control and children are very easy to control without a parent watching out for them. It’s a pretty standard socialist tactic. Obama and his own personal government (aka the Czars that are eliminating the necessity for other branches of government) are making it more difficult for families, I am sure, on purpose.
    But there are a lot of other consequences here that are not so PC. Basically our Pres has reversed any sort of advancement women have made during the last century. This President pretends to be a friend to women, but this is a good example of what he really thinks of them. They are worth nothing. They can’t even get a credit card except in their husband’s name.
    So a DV victim can’t prepare herself for an escape now? She is financially trapped without recourse? Why aren’t the womens groups up in arms about this? Why is this not front page news?
    The media is pretty silent on this issue for something that is such a huge setback for women.
    I wonder when–as it looks like the direction that Obama is headed–we women will have to have a male chaperone with us in order to leave the house?

  17. If SSI is your only income, they can’t aatcth your bank account, They’d have to petition the court to aatcth your account and you tell the court your account is receiving direct deposit SSI and, same bank or not, they can’t aatcth it,Flip side,,, If you fail to tell the court your account is receiving SSI benefits then the creditor can aatcth it,, Good luck,

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