If you are a stay-at-home spouse, you may have heard about some new law that is apparently keeping you from accessing credit, and if so, you’re probably equal parts perturbed and perplexed. Could it really be that stay-at-home spouses are legally precluded from building the credit they need to get the lowest loan rates and insurance premiums, lease cars, or qualify for certain jobs if they decide to work outside the home in the future? Well, not exactly.
For years, consumers were able to apply for credit cards using their household income and assets, despite the fact that they were required to list personal debts and liabilities on their applications. So what? Well, this made it hard for credit card companies to effectively evaluate the ability of applicants to afford certain types of credit cards. In other words, it was pretty much impossible to tell how much of one’s household income was theirs to spend on credit card payments and how much was already allocated to other monthly obligations – a spouse’s debt, for example.
That, of course, led to a significant number of unqualified folks getting approved for credit cards with credit lines in excess of their ability to pay. The overleveraging that resulted, combined with risky lending practices, helped bring about the Great Recession. By the end of 2008, U.S. consumers were revolving a total of $989.1 billion in credit card debt, according to a Card Hub debt study, and in 2009, roughly 25% of adults were classified as having bad credit.
This only goes to show that a systemic change was needed, and that is what the Federal Reserve provided with new rules that took effect a few months ago. These rules state that unless you are filing a joint credit card application, you can only list individual income and assets as well as individual debts and liabilities. It therefore means that stay-at-home spouses are largely cut off from credit because they may not have significant assets or any individual income.
I use the word “largely” because it is still possible for a stay-at-home spouse to get a credit card. In fact, there are two ways to do so:
Option 1 – Joint application: A number of credit card companies offer joint applications, which allow you and your spouse to both list your income and assets as well as your debts and liabilities so that your ability to pay is calculated at the household level. Because you are both liable for card use, information about this use will be reported to the major credit bureaus on a monthly basis, thereby helping both of you build credit.
Option 2 – Secured card: Secured credit cards have much more lenient underwriting criteria due to the fact that issuers are protected by a refundable security deposit that acts as collateral should you be unable to pay your bill in full. As long as you have a part-time job or some savings, you should have no trouble obtaining a secured card, which will be indistinguishable from an unsecured card on your credit reports.
Obviously, these options do not foster a lot of card variety, which is why the Fed’s rules merit some tweaking. More specifically, the Fed should require all credit card issuers to allow joint applications for all of their credit card offers. Doing so would provide a stay-at-home spouse the same credit opportunities as everyone else.
This article comes from our friends at Card Hub, a leading online destination for credit card comparison and news.