It would seem like a simple enough rule: No income, no credit.
And so when Congress passed the Credit CARD Act of 2009 to protect consumers against aggressive lending practices, one of the stipulations required banks to consider a person’s ability to repay debt before issuing a credit card.
Yet this seemingly logical rule has erupted in controversy because of claims that it prevents stay-at-home parents from getting their own lines of credit.
Protecting or patronizing?
The rule requiring income for credit was meant to protect college students, who before the Act were issued credit lines despite having no or little income. However, in March 2011, the Federal Reserve Board extended the provision, requiring that card issuers consider applicants’ ability to repay debt, “regardless of the consumer’s age.”
Fast forward one year. Holly McCall, a stay-at-home mom in Vienna, Va., applies for a store credit card at her local Target, listing her income as zero. She gets turned down — despite the fact that the McCalls net more than $100,000 a year.
“It is 2012, and because I’m a stay at home mom, I can’t get my own credit card,” McCall wrote in her petition. “My husband has to give me permission to get my own line of credit.”
That sentiment was quickly shared by more than 36,000 consumers, who signed McCall’s online petition. In short order, McCall met with Richard Cordray, head of the Consumer Financial Protection Bureau, who promised to look into the issue.
Critics were quick to point out that McCall, up till four years ago, worked at Capital One. Furthermore, she is married to a senior director at Capital One, a company that would greatly benefit from more lax underwriting standards. McCall, however, denies that her petition is linked to her husband’s Capital One connection, arguing that she is acting out her own genuine frustrations over needing her “husband’s permission to get a credit card.”
How to build credit as a stay-at-home parent
While being denied a card would be enough to get any stay-at-home parent — male or female — fuming mad, critics question how much of an issue this really is.
“The notion that stay-at-home moms are suddenly cut off in the credit market, we haven’t really seen any evidence that this is happening,” says Joe Ridout, manager of Consumer Services at Consumer Action, a consumer advocacy group. “We see a lot about this from credit industry lobbyists, who want to return to the days of instant credit, but no real reports from actual consumers.”
There are plenty of ways stay-at-home parents can get access to credit, Ridout says. Even with the new Fed ruling, the limitations are not as strict as they may seem. If you are a stay-at-home parent with good or excellent credit, here are four tips to get a credit card. If you have poor credit or no credit, start by building your credit history first.
1. Check your state’s rules
The Fed rules don’t apply to the more than 90 million Americans who live in one of the nine community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, each spouse has legal ownership over the other person’s income, so stay-at-home spouses can claim the full household income.
2. Just apply
Even if you don’t live in a community property state, you can still apply for a credit card of your own. While the Federal Reserve Board closes the door for card issuers to consider applicants’ household income, it does permit card issuers to rely on information the applicant provides about annual “income” or “salary” to satisfy the application requirements.
“The Board believes that married women who do not work outside the home and low-income families will continue to have access to credit,” the Board notes in its ruling. “[T]he 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.”
That’s Fed speak for “just apply.” If the card issuer asks for “annual income,” and not “independent” income or “household income,” there is sufficient implied ambiguity that most stay-at-home spouses who simply list family income will find that they get approved for a new credit card.
3. Just apply again
If you do get turned down for a credit card despite an excellent credit score and sufficient income to carry a credit line, don’t give up, Ridout recommends.
“If you have unfairly been denied credit, go beyond the automated credit system,” Ridout says. “In most cases, you can obtain credit if you call and ask to speak with a credit analyst and show asset and household income.”
Ridout recommends getting in touch with the credit analyst department at the issuing bank, which is set up to evaluate applications individually based on assets and income. If you have personal relationship with a local bank, that is an even better option.
4. Be wary of joint credit card accounts
Finally, while an easy solution is to simply open a joint credit card with your spouse, Ridout cautions that this can backfire — because it can make one spouse dependent on the other.
“Inherent in that is the issue of female disempowerment. You don’t want to reiterate the issue of one spouse being financially dependent on the working spouse,” Ridout says. “And a joint credit card can become extremely problematic for many couples. Your spouse could rack up high credit card debt, and you would be responsible for the debt.”