Having a job is generally not a requirement for acquiring a credit card. What is required is income, and those are two different things. Let’s talk about why you might need a credit card during the coronavirus crisis and what income you can include in your application.
Last week I wrote about how to keep your credit and score intact as we move through the coronavirus pandemic.
Two of my recommendations were to use credit in place of cash where possible and to treat your credit like you are unemployed. But what if you are unemployed?
And what if you don’t have a credit card or just have one with a low credit limit? Can you get a credit card if you don’t have a job?
In the weeks to come, there will be massive job losses due to the COVID-19 Coronavirus pandemic. In the wake of that, you may be concerned about your prospects for getting a credit card if you are laid off and cannot find other work.
It is difficult to know how the creditors will see this crisis, but I can tell you from experience that they have tried to be accommodating in the past. Strange as it may seem at first glance, having a job is generally not a requirement for acquiring a credit card. What is required is income, and those are two different things. Let’s talk about what you might expect.
First, let’s discuss why you might need a credit card. Most of the country is already under orders to stay home, but what about when you need supplies? If your only option is to order something online, a credit card is your best option for paying (although your debit card will likely work as well).
Differences between credit cards vs. debit cards
There are some key differences in debit cards versus credit cards. A debit card is linked to your bank account, and when used for payment will drain it of cash instantly as you use the card. This is cash that may be hard to replace in uncertain times.
A credit card is not linked to your bank account, but to a revolving line of credit that you can draw from and repay with a payment of your choosing, from minimum payment to the full balance. Credit cards also offer protections that debit cards do not, which make them preferable for many transactions.
So, let’s go back to ordering supplies while you are stuck at home. Let’s say you did that but you don’t get what you ordered or don’t get it at all. If you used a debit card, you may have to wait for a refund while you dispute the bill. But credit card protections are in place to help you resolve any dispute without drawing down your cash stash until it is resolved.
Remember, also, that I said in an earlier column that you should be preserving your cash as much as possible during this crisis. Having a credit card is one good way to do that, but of course you will be responsible for making your minimum payments. The situation we find ourselves in is ever-changing and the option of paying only a fraction of what you have just spent plus the grace period you gain when using a credit card for purchases may be enough to tide you over until you are back at work.
What income can you use on a credit card application?
As I said, you must be able to show you have the income to make your payments. This income might be from that emergency savings that I hope you have in place. It could be from unemployment benefits you are receiving or other government assistance. It could be from a spouse who is still receiving their paycheck, or from a parent who is able to help out.
Whatever you have, be sure to use all your sources of income (your entire household income) on your application. Some card issuers ask for an estimate of your annual household income.
It’s important not to lie about this. Filing a fraudulent credit application can make matters worse. But there is no need to be overly conservative, and you might be maybe even a bit optimistic if you have reason.
Take the example of a retired person relying on investments for income applying for credit. When asked about their annual household income all they can say is what they reasonably expect to make on their investments.
Using Discover as an example, it defines income as wages, salary or tips you currently earn or can reasonably expect to earn. Other examples include bonus pay, commissions and income from rental property, interest, dividends and retirement benefits paid.
You may include alimony, child support or separate maintenance income if you want it considered as a basis for repayment. If you are 21 or older, you may include another person’s income that is available to you. If you are under 21, you may consider the amount of another person’s income that is regularly deposited into your account.
Students can get a card based on income, which is defined as wages, salary or tips you currently earn or can “reasonably expect” to earn. Other examples include part-time or full-time work, internships and summer jobs.
Good credit history may make up for low income
You should note that the creditor will also rely on the information in your credit report to make a decision, so if you have a good credit history you may not have much of a problem at all.
However, those with “thin” credit files or a low credit score might need to fall back on the tried and true practice of becoming an authorized user on someone else’s card. This has worked well, especially with people new to credit whose parents add them to their accounts to begin to build a credit history in their own name.
Those in this category might also look for a responsible co-signer to get the credit they need. These are good options for those that are searching for credit, but the co-signing party is going to be on the hook for any missed payments. Both sides need to be very sure they are willing to take the risk.
If neither of these options are available to you and you need to build up your credit file and score, you could also consider a secured credit card. These cards are backed by a cash deposit that you put up and your credit limit is usually equal to the deposit. If you don’t make your payments, the creditor can then take the deposit. Be sure if you use this option that the card will report to the credit bureaus so you can build your credit.
As we navigate these uncertain waters, I would caution everyone to not take on any extra financial burdens if your budget will not allow for the repayment. At some point, you will come through all of this and be on the other side with your credit score intact. And that will be a good thing.
Remember to keep track of your score!