If you’re a stay-at-home mom, apparently you don’t deserve your own credit card. That’s essentially the message from the Fed, which recently announced a new rule requiring credit card companies to consider individual income and not household income on credit card applications. That means a stay-at-home spouse without income of her own could soon find it impossible to obtain a new card. Sure, she can be an authorized user on her husband’s card or use a secured card that's pre-loaded with cash, but neither of those solutions offers the same flexibility or freedom that comes from having a card of her own.
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Several members of Congress, including Rep. Carolyn Maloney, D-N.Y., have argued that the rule change threatens the safety of spouses who are victims of domestic violence. In order for them to escape from an abusive relationship, they might need access to their own credit cards. Maloney has also pointed out that even for women in healthy relationships, the idea of not being able to own their own credit card represents a step backward. (For more on the credit limitations that new parents face, see Why New Parents Can’t Get Credit.)
Tim Chen of NerdWallet.com says that military spouses whose partners are deployed overseas could also soon find it difficult to take out new lines of credit. In addition, divorcing couples with many joint credit cards find it much more difficult to separate their financial lives, since card issuers continue to hold both spouses accountable even after a separation. If the rule inspires more joint cards as it is expected to do, that could lead to more complicated divorces. Post-divorce credit problems, which are common, can usually be avoided by closing joint accounts, but in the wake of this rule, doing so could leave a stay-at-home spouse suddenly without any access to credit.
The upside of the regulation, if there is one, is that it will stop people who can’t afford to take on debt from doing so. One group Congress was particularly interested in protecting, and perhaps the intended focus of this rule, is college students. The Credit Card Act prevents anyone under age 21 from obtaining a credit card without proving that they earn enough income to afford it or having a co-signer (such as a parent). This Fed rule further enforces that point, since it prevents a college student from using his parents’ income to apply for a card.
The Federal Reserve itself says (in documents it released along with the rule change) that it believes “married women who do not work outside the home will continue to have access to credit,” largely because they can share cards with their working spouses or become an authorized user on their spouses’ cards. It also suggests that stay-at-home moms might even be able to claim their working spouses’ income as their own on credit card applications, although it’s not clear whether that is a legitimate practice anywhere other than community property states.
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Even proponents of the new rule agree that stay-at-home spouses and college students alike still need to find a way to build their credit history, which is essential to all kinds of financial transactions, from buying a house to renting an apartment to landing a job. You can build up your credit history as an authorized user on a shared card, as well as by putting utility bills and other accounts in your own name. TransUnion’s Clifton O’Neal explains that income and employment data have no effect on credit scores, so stay-at-home spouses can build up a credit history through those types of accounts. And while spouses don’t share credit scores, their credit histories often overlap where they share the same accounts, such as mortgages or auto loans.
Chen recommends that abused spouses should work toward “discreetly funneling their spending” into a secured credit card, which functions like a pre-loaded card, so they can enjoy some measure of financial freedom. “Most people can qualify for a secured credit card regardless of credit history, because these cards are collateralized with your own money. This way, even if you are paying off your budgets each month using a tightly monitored cash flow, you can still build an independent credit history,” he says.
In the meantime, stay-at-home spouses should apply for any new credit cards they want now. The Fed’s rule goes into effect October 1, although card issuers could begin enforcing it at any time.
Kimberly Palmer (@alphaconsumer) is the author of the new book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.