Home > Credit Cards > Establishing Credit Will Be Harder For Non-Working Spouses

Comments 0 Comments

Shopping_DavidMcKelvey_CCFlickrIn one perhaps unintended consequence of the Credit CARD Act, it will become more difficult for non-working spouses, often women, to get credit cards on their own. The Federal Reserve Board has announced its final rule implementing the CARD Act, effective October 1, 2011, which includes guidance on the thorny issue of evaluating a credit applicant’s ability to pay.

When writing the CARD Act, Congress attempted to rein in the often outrageous credit limits issuers were handing out to consumers, with what seemed like little regard as to whether or not customers taking full advantage of their limits would realistically be able to pay them off. A provision in the Act says that:

[a] card issuer may not open any credit card account for any consumer under an open end consumer credit plan, or increase any credit limit applicable to such account, unless the card issuer considers the ability of the consumer to make the required payments under the terms of such account.

While it sounds straightforward enough, issuers worried the provision could thwart their ability to provide instant credit in retail stores. How could they verify that someone has the ability to pay back the debt in the mere seconds it takes to open a new retail store account?

In response, the board, which has been charged with writing rules to implement the Credit CARD Act, determined that creditors could rely on information provided by a consumer on a credit card application without verifying that information for themselves. In other words, you don’t have to fork over your paystubs to prove you earn what you say you do. Issuers can take you at your word as long as it makes sense.

Card issuers then came up with another question: Could household income—rather than individual income—be used to qualify applicants? It’s a legitimate question, especially in households where one spouse works outside the home and the other works at home, oftentimes to raise a family. The spouse who doesn’t have an external job may not get a formal paycheck, but still have equal access to household money to pay bills—including the new credit card account.

On this issue, creditors appeared to have the Equal Credit Opportunity Act on their side. ECOA, a law passed in 1974, was designed to help prevent discrimination by lenders, especially when it came to extending credit to women. Under ECOA, for example, creditors can’t ask about a credit applicant’s marital status.

[Related Consumer Guide: How the Credit CARD Act of 2009 Affects You]

After reviewing comments from the industry and consumer groups, the Fed determined that household income would not fulfill the requirements of the CARD Act in determining whether an applicant has the ability to repay the debt. The exception is in states like California or Texas, where property acquired during the marriage is generally considered community property. If issuers do ask for household income, they will have to go to the additional step of verifying that the individual applying has the ability to repay the debt. There is no similar requirement if the issuer asks for the applicant’s individual income.

This means we probably won’t be seeing household income on credit applications much longer. It also means that those who have unpaid, full-time jobs within their households—often but not always women—will likely be dependent upon their spouses to establish credit.

In its commentary, the Board says that non-working spouses can still establish credit by being added to their spouse’s accounts as an authorized user or joint account holder. But that still leaves their credit life completely tied to that of their spouse, something I don’t recommend.

The other alternative? Stretch the truth. State an income you earn in your household job. Make up a job title. But that’s something I also don’t recommend.  Not only will it get tricky when it comes to listing the details of your employment, but it could really come back to haunt you if you ever had problems paying back the account. But I suppose that’s what the Board is trying to help you avoid in the first place.

Image: David McKelvey, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team