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The Fed Limits Credit for Stay-At-Home-Moms (and Dads)

by Emily Guy Birken

For the past year, non-working spouses have found themselves in a difficult credit position: as of October 1, 2011, they were no longer able to qualify for credit based on their household income. This change came about because of the 2009 Credit CARD Act, which was attempting to fix problems in the credit industry. Unfortunately, sometimes forward progress in one arena takes you backward in another.

This legislation was passed in order “to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes.”

Stay at home moms have trouble getting a credit cardThe noble goal of this act was to reduce predatory lending practices and to ensure that vulnerable borrowers—such as minor college students—could not be targeted for promotional and marketing schemes. In addition, the law hoped to make it possible for borrowers to actually dig themselves out of debt while only paying the minimum each month. Finally, the law changed the requirements for credit-worthiness: now, an individual cannot use household income when applying for a credit card, but only his or her own individual income.

Unintended Consequences Limit Credit Availability

The upshot of this portion of the law—which was written to make sure that college students and other non-working individuals cannot get themselves into credit card trouble—is that stay-at-home-parents can no longer apply for their own credit cards without their working spouse co-signing for it. This also means that these stay-at-home-spouses cannot establish or build their own credit.

This is a fairly serious unintended consequence of a well-intentioned law. Not only will it be difficult for young stay-at-home-mothers who have not already established their credit history to become credit-worthy, but it also has fairly serious ethical implications for battered spouses. Access to credit is an important tool for victims of spousal abuse to find a way to escape. Finally, the end of a marriage through separation, divorce, or death could be financially devastating to the stay-at-home-spouse who not only has to enter the work force after many years away, but also has no credit history established.

The website MomsRising started a petition to ask the Fed to rethink this particular policy. According to The Credit Union Times, the petition got the attention of Richard Cordray, the Director of the Consumer Financial Protection Bureau, who has stated that he is committed to finding a solution to this thorny problem.

While the implications may be somewhat alarming when you consider that the Fed has determined that working as a stay-at-home-parent is financially worthless, the situation is not completely dire for many SAHMs and SAHDs. The ruling is not retroactive, so any credit a non-working individual had in his or her own name prior to the law will not be taken away. This allows non-working spouses to continue to build credit.

In addition, any income that a stay-at-home-parent brings in can be considered for credit-worthiness. The law does not specify how much income you must have—only that you have the ability to make payments. So if you do any kind of freelancing, babysitting, or teaching, or you own a small home business, then you can still qualify for credit—although your credit limit will be affected by the amount of money you bring in.

Ultimately, access to credit is something that should be regulated so as to keep irresponsible borrowers from getting themselves in trouble. However, the new law has made it seem as though all parents who decide to stay home with their kids would be irresponsible with credit. While legislating such nuanced issues is very difficult, there does need to be room for spouses who do the work of parenting and care giving to be able to also have independent credit. Clearly, the Fed has a difficult issue on its hands.


Published or updated September 20, 2012.
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{ 2 comments… read them below or add one }

1 Crystal @ Prairie Ecothrifter

Wow. That sucks! I never thought about the consequences of not being able to build your own credit. And stay at home parents should not be considered less credit worthy! Crazy.

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2 Daniel

While I understand how this change in rules may cause some unpleasantness for some, and I agree that it will definitely add some struggles for the SAHPs. It is important congratulate these one working parent households on being successful enough to support the whole household on one income and to congratulation the SAHP for providing value at home. I would like to however, for the sake of argument, try to take the other side on the discussion of this rules change here.

Before I begin, I would like for all of us to acknowledge that it is possible to gain a credit history by having a joint account with one’s spouse and that one does not need to get a card on their own. Lets assume I am the stay at home parent and I generate no income through freelancing etc. I would like to have access to a credit card but do not want to risk a joint account with my partner because I don’t want to be responsible for the working spouses spending in the event of a divorce or overspending etc. [begin rant] How does it now make sense for me to then apply for a card and claim the household’s income as collateral? I don’t want to personally be subject to a garnishment due to my spouses poor financial decisions, but I want to subject my spouse’s(the households) salary to garnishments based on my poor financial decisions!?!?!? It just doesn’t tell a consistent story.

Back to a point that people care about, If you were a bank, would you want someone to tell you that you have to lend to people with ZERO ABILITY TO REPAY THE LOAN? Most likely people would start mentioning something to the effect of a new crisis dubed the CC bubble. [end rant]

Now I agree that everyone who has not proved they cannot handle credit responsibly should be provided an opportunity to prove that they can handle it responsibly. This should include SAHPs too! From what I have seen anecdotally regarding CC underwriting criteria at major banks, if one has a checking account and a savings account at a major bank or credit union it is usually possible to obtain a low limit credit card around 200-300 dollars to start. This may be a work around to the requirement of income. Money in the bank = Ability to pay the loan back.

What are other thoughts regarding this rules change?

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