One of my favorite things about writing for Mint is the quality of the comments to my articles. I don’t care whether they’re supportive or adverse, at least you’ve thought enough about the issue to render and then express your opinions. My article from last week about how the CARD Act will likely hurt men and women who don’ t have independent income resulted in many comments, so many that a follow up seemed appropriate.
If you don’t have time to read the article, here are the Cliff Notes: Under the CARD Act, individuals applying for a credit card must have an income or a co-signer to be approved for a credit card. Otherwise, no luck. I don’t like that provision, and I let it be known.
That said, people in that position are still able to get or use credit cards, legally and ethically, with the four strategies below:
Become an Authorized User
An authorized user is someone who has a card with his or her name on it but doesn’t have financial liability for the payments (except in certain instances in community property states). They do, however, have full charging privileges, just like the primary cardholder. The card does show up on their credit reports, in many cases, so being an authorized user is a great way to establish credit or rebuild credit.
Think of it like having a credit card with training wheels. It’s a great way for young people to begin their credit journey. Or, it’s a way around the CARD Act provision that prevents issuers from opening a card for someone who has no income. The “authorized user” strategy is a generally accepted method of getting some plastic in your wallet… just be responsible with it!
Find a Co-Signer
This is a dangerous road, so I caution anyone who chooses this option. In fact, we’re now seeing students co-sign for other students in order to get credit cards: that’s bad news (though it supports what I’ve said before: people are going to find a way to get a card if they want one badly enough). Why? Because once you co-sign for a credit card, you are liable for that debt, no matter what.
In many cases the co-signer is going to be a spouse, which might seem completely benign. However, with divorce filings at 50% of marriages it’s a chance that about half of you will wish you hadn’t taken. Co-mingling debts is easy… de-mingling them is next to impossible. And, in a divorce scenario, “working together” to separate debts (a requirement of the card issuer) seems unrealistic.
Find a Job
Yes, I know this makes all the sense in the world. No income should equal no credit card, right? Trust me, it’s just not that simple. Hit a popular area mall at 2:00pm on a Tuesday during the school year and an overwhelming percentage of the people you’ll see are stay-at-home moms and dads, who have no individual income. Eliminating their ability to get credit on behalf of their household seems unfair to me.
Certainly you can get a job and then “work” your way around the income requirement provision (pardon the pun). I just don’t think it’s a realistic to expect someone to go to a retail outlet, be denied a card because of no income, go find a job, and then come back to re-apply. Which brings us to the last strategy on our list, which also happens to be much easier…
…Use Another Card
The income requirement, thankfully, only applies to new accounts. It doesn’t apply to the continued use of an existing credit card account. The CARD Act police are not going to knock on your door and take away your cards if you can’t produce a paystub. (To me this is the very reason why the income requirement makes no sense. Instead of allowing the “buyer” to open a new account and save 15%-20% off the purchase we’re going to force them to use an existing card, at no discount. They’ll spend MORE, not less.)
Look, I realize there are good reasons to keep certain people away from plastic. In fact, there are some people who shouldn’t have credit of any kind… ever. But to simply make it a rule that an income is required in order to open a card, which doesn’t mean you’ll ever use it or ever revolve a balance, seems like a nuclear approach to a surgical problem. I’d always err on the side that thinks educating someone, be they under 21 or a stay-at-home spouse, on the dangers of plastic use is a teaching opportunity that pays immeasurable dividends.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit.