During the years preceding 2011, individuals could apply for credit cards based on their combined household incomes. In other words, even though a person was a stay-at-home parent — with no formal income — they could apply for credit based on the earnings of their spouse or domestic partner. The only prerequisite was that both people needed to reside in the same home. Certain aspects of the Credit Card Accountability Responsibility and Disclosure Act of 2009 were interpreted to mean individual applicants must have their own steady source of income to be approved for a credit card.
A stink arose
An unintentional consequence of this misinterpretation was an implication that stay-at-home-parents were suddenly prohibited from applying for credit on their own. Naturally, this resulted in a huge stink in the blogosphere, as charges of systemic inequality began to circulate. Meanwhile, the reality was that stay-at-home parents could still get credit cards, though the process wasn’t as cut and dried as before.
The emergence of this issue highlighted a number of other fallacies regarding marriage, credit and debt. Here are four of the most persistent credit card myths—and the realities.
You can get a credit card as a stay-at-home parent if you and your spouse apply for the card jointly, or if you are made an authorized user on an existing account. However, it can still be tough – though not impossible – for a stay-at-home parent to qualify for a card as an individual applicant.
The ruling from the Federal Reserve doesn’t specifically state the amount of income a person must have to get a credit card. But it does say the company issuing the card must evaluate an applicant’s ability to make payments. This means if you earn a little money through freelance consulting work or a small home business, this could be enough for you to get a credit card.
While a credit card can help you build credit, so will other types of loans. In essence, having a credit card isn’t crucial for building credit if you are a stay-at-home parent. If you pay your student loans, auto loan or mortgage on time, this will help increase your credit score. This assumes your name is on the loan, either as an individual or a co-signer. It is also possible to build a credit history as a joint account holder or as an authorized user on someone else’s credit cards.
You don’t automatically share debts that individual members of the household take on. The person responsible for any credit card debt is the person who signed up for it. This means the credit card company can only go after the person who signed the card’s user agreement.
A spouse won’t be harassed about paying—unless it was a joint application. In fact, this goes for any type of debt you took on before you were married, including student loans.
However, there is one big exception.
There are nine community property states. If you live in one of them and your spouse signs up for a loan or credit card that both of you benefit from, the two of you will share the obligation to pay it back.
Many people assume their credit histories are instantly merged when they get married. This is not true. They remain separate unless you sign up for new debt together or create joint accounts. Your individual reports may show some of the same information in those instances.
Your spouse’s credit actions will generally only affect you if you are a stay-at-home parent and rely on their income. Your household will pay higher interest rates on credit cards and loans if that person’s credit history is not up to par.
Your better credit report will help only if you sign up together. In the event you can both prove income, the spouse with the better credit rating can take out the credit cards and loans for the two of you – assuming that person’s income is enough to qualify.
When it comes to taking out a mortgage, you may need to use both of your incomes. This is a case in which a spouse with bad credit can hurt your chances for approval.
The best financial strategy
The best financial strategy is to discuss and work on any credit issues in a relationship early on. This may seem premature to do if the relationship isn’t serious yet, but it pays to be prepared.
Hiding your bad credit history from your partner is an unfair thing to do. By the same token, finding out you have hitched your life to someone who was not forthcoming in that regard will put a damper on the relationship.
At some point while dating you might say, “let’s just stay in tonight and look at our credit reports.” You can obtain them free of charge at http://www.annualcreditreport.com.
The site offers credit reports one at a time or simultaneously. Many people choose to get them individually at four-month intervals as this gives them a cost-free way to monitor their credit reports on a quarterly basis.
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