Can I Use Household Income for Credit Card Applications?

Can I Use Household Income for Credit Card Applications?

During the 2013 amendment of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, CFPB Director Richard Cordray announced that spouses or partners who are 21 or older and do not work outside of their home–but have access to resources that allow them to make credit card payments–can now qualify for credit card applications.

The updated regulation was part of the Consumer Financial Protection Bureau’s (CFPB) commitment to working with consumers and financial institutions to guarantee responsible credit access for American families.

However, before creating a new credit card account or increasing a credit limit, card issuers must evaluate a borrower's ability to repay it, according to the said CARD Act.

Now while you can use your household income for credit card applications, there are a few things you should know first before filing for one–as it also depends on the lender and type of loan–and here’s everything you need to know.

What Counts as Income When Applying for a Credit Card?

The updated CARD act states that borrowers over the age of 21 can list any income to which they have “reasonable expectation to access”. There are varying standards for what counts as income here but this broad definition can include:

• Employment income
• Earned income from self-employment
• Social Security income
• Shared Income (from a spouse or partner)
• Household member’s income or assets (as long as you have reasonable access to these funds)
• Trust fund distributions
• Retirement fund distributions

Special Rules for Borrowers Under The Age of 21

The Consumer Financial Protection Bureau (CFPB) sets more restrictions on banks that extend credit to borrowers under the age of 21.

Applicants under 21 must have an independent ability to make the minimum required payments or have a cosigner who is 21 years or older and agrees to become accountable for the debt on the account, according to the bureau's regulations.

This basically means that someone under the age of 21 cannot include earnings from others when listing an income during a credit card application.

What Does Not Count as Income When Applying for a Credit Card?

Credit card issuers often want you to include only regular and recurring sources of income that you can use to pay your balances. In this sense, you should avoid reporting:

• Unemployment Insurance benefits
• Money won from one-time events like lottery
• Vouchers and other non-cash assistance
• Some financial aid
• Any income you don’t have access to (garnished wages for alimony or child support, tax debts, and student loans)
• Borrowed money
• False or non-existent income

It’s important to note that lenders may vary on which types of income they’ll accept for your application. To be sure, you can contact your credit card issuer before applying for a credit card.

Is there a Required Minimum Income to Be Approved for A Credit Card?

The answer is not exactly. Following the 2008 Recession, the Credit CARD Act of 2009 enacted new provisions to protect consumers. Although the Credit CARD Act does not establish minimum income requirements, it does limit creditors from giving credit to someone who is unable to make the required payments under the terms of the credit card account. But what does that mean exactly?

While a higher income will typically increase your chances of qualifying for a credit card, there is no set amount of income that will ensure approval.  However, creditors must consider your ability to repay the debt. 

The credit card issuer will consider your income to assess your eligibility. But specifically, they will calculate your debt-to-income ratio, which compares your gross monthly debt payments to your monthly income.

The CFPB suggests that you keep your ratio at 43%. This value will be used by issuers to determine how much you can afford to pay and will be used to establish your credit card limit accordingly. This includes being able to make payments on a credit card that is completely maxed out. Your credit score and credit history are also key considerations.

Types of Credit Cards That Suit Household Income Sources

Your income is a significant factor in deciding the credit limit you can get, but it is not the only factor.  As stated above, credit card issuers also take several factors into account including your credit score, credit report, and any existing loans.

Credit card eligibility requirements help creditors in lowering the risk of lending and allowing them to provide you with products that are appropriate for your financial situation. In turn, you can utilize these requirements to help you select and apply for credit cards that are appropriate for your specific needs.

Depending on your circumstances, some of the credit card types you could consider are:

• Balance transfer credit cards: If you have high-interest credit card debt, these cards can help you save a lot of money. They offer 0% APR for a year or more, allowing you to pay off your loan without incurring any interest.
• Low-interest credit cards: To prevent interest, you should pay down your debt in full every month. When that isn't an option, a low-interest credit card can help you save money.
• Rewards Credit Cards: If you have a good or excellent credit score, you may be eligible for rewards cards that provide cash back or travel points or miles on every dollar spent. Many of them provide substantial intro bonuses.
• Secured Credit Cards: These are useful resources for individuals who have poor credit or no credit history. They normally request a security deposit equivalent to your credit limit. When you close the account or switch to a regular credit card, you will receive your money back.

Can I Also Apply for My Own Credit Card Without A Job?

Yes, you can also apply for your own credit card without a job. For the most part, having a job isn't always required to get your own credit card. You can input your income from the different sources stated above, and if you're over the age of 21, you can enter someone else's income if you have reasonable access to it.

Another alternative is to make someone else a joint account holder. You can also request someone to apply as the primary cardholder and add you as an authorized user. You can use the card as an authorized user, but your repayment obligations will be different from the primary cardholder.

Final Thoughts

If you have the means to pay the payment, not having a job should not prevent you from obtaining a credit card. However, it is still necessary to manage your credit responsibly.

Set up monthly alerts to ensure you don't charge more than you can afford to the account and don't charge more than you can afford to the account. If you can pay off the debt in full each month, you may also save money on interest.

Always remember that a credit card is designed to be a tool to help you with emergencies and minor expenses, not to be used to pay for items you can't afford.