Wednesday, October 1, 2014
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Stay-at-Home Spouses Face Credit Restrictions



Stay-at-home parents and spouses in single-income households face new restrictions on applying for credit card accounts in their own names.

The restrictions result from new Federal Reserve guidelines created to help enforce the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act.

The Federal Reserve's clarification of CARD Act rules requires credit card issuers to consider only the applicant's income—rather than the household's income—when opening a new credit card account or increasing the borrowing limit on an existing card.

Credit restrictions

A stay-at-home spouse who wants to safeguard credit access might want to open an individual credit card account before the new rule takes effect on Oct. 1, 2011, according to Mike McLain, assistant general counsel for the Credit Union National Association (CUNA), Madison, Wis.

Once the rule is implemented, McLain says a stay-at-home spouse without assets or a source of individual income will be unable to open a new account solely in his or her own name.

If they already have accounts, they may be unable to have their credit limits raised.

"It really makes credit less available," McLain says. The rule's impact is significantly reduced in community property states.

Options for new accounts

McLain says stay-at-home spouses without individual accounts still have options for gaining access to credit cards.

For example, the Federal Reserve suggests that a stay-at-home spouse open joint accounts with the spouse or become an authorized user on an account in the spouse's name.

McLain says payments on these accounts are typically reported to credit bureaus for all cardholders, which helps a stay-at-home spouse maintain a credit history.

Stay-at-home spouses also could look for a credit union that offers a starter credit card "secured" by the balance in a savings account, McLain says.

Stay-at-home spouses could look for a credit union that offers a starter credit card.

For example, a secured credit card with a $500 credit limit would require a credit union savings balance of $500, which you typically cannot remove from the account as long as the credit card remains active.

Preserving credit access

The new rule highlights the value of maintaining an individual credit history, according to Dorothy Barrick, a financial counselor and group manager for GreenPath Inc., a 501(c)3 nonprofit credit counseling company based in Farmington Hills, Mich.

Stay-at-home spouses who rely solely on joint or "authorized user" accounts risk losing access to credit cards if they lose the companionship or cooperation of their spouse due to death or divorce.

"As a younger widow myself, I was caught off guard when suddenly my husband passed away," Barrick says. "Not only was his income eliminated, but also his wonderful credit score."

Barrick's financial institution quickly closed the joint credit card accounts that had been opened based on her husband's income.

"Luckily I had my own credit and was able to pick up the pieces," Barrick says. "How awful it would have been if the only credit card I had was primarily his."

Communicating about debt

Despite the rule's impact on stay-at-home spouses, Barrick believes the rule's restrictions could benefit some couples by forcing them to talk about debt, including when and where credit cards should be used.

That prevents the problems that occur when one spouse keeps the other in the dark about spending and debt.

"I have counseled clients that had just discovered that their significant other was secretly drowning in debt," Barrick says. "Now that the credit card application asks for the borrower's income instead of the household income, we are seeing credit limits that mirror the wages."

The rule's restrictions could benefit some couples by forcing them to talk about debt.

When that occurs, people with lower incomes have lower credit limits, which means their payments remain more affordable.

Making wise choices

Both McLain and Barrick say it is acceptable for households to have more than one credit card, particularly if it helps both spouses maintain individual credit.

For wise credit use, these experts say you should aim to:

  • Have a small number of cards for the entire household, including one card reserved solely for emergencies.
  • Track your spending so you know how much you owe.
  • Pay each card in full by the due date each month.
  • Seek cards with reasonable interest rates and without annual fees.

The goal should be making sure credit is available to support the household when an emergency arises.

"Neither party should be solely reliant on the other as no one knows entirely what the future will hold," Barrick adds.

Community property laws lessen rule's impact

The CARD Act rule forcing credit card issuers to weigh only the applicant's individual income will have minimal impact on stay-at-home parents in states with community property laws.

Community property laws typically ensure that both spouses have equal rights to assets and income—as well as equal responsibility for debts—that are acquired during a marriage, although specifics vary from state to state.

That means stay-at-home parents applying for credit cards in their own names in a community property state can claim a share of their spouses' incomes and assets.

States with community property laws include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.



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