The decision to quit a full- or part-time job and stay at home with the kids is one that most families don’t take lightly. It’s often a major personal and financial decision with so many different factors to consider. In the past, financial experts recommended that parents who were considering quitting their job apply for credit cards in their name before quitting. Under the Truth in Lending Act’s Regulation Z, card issuers were obligated to consider the consumer’s individual ability to make the required payments under the terms of the specific account. For the millions of stay-at-home parents in the United States, this meant that they could not obtain credit if they didn’t have a separate income stream of their own to appropriately cover the credit line. This regulation left many stay-at-home parents without cards in their own name, unless they already owned them before leaving the workforce.
This can be a major issue, however. Responsibly using credit is one of the best ways to continue to build personal credit history. Families, especially those with a stay-at-home parent, often combine financial resources, but credit reports are personalized for the individual – not for a family. Often, the stay-at-home parent is the one managing the families’ finances responsibly, but that wasn’t included as a factor in the credit decision under this regulation. All adults, regardless of their current employment status, should continue to build good credit over the years because you never know when you’ll need access to it. Even those who want to stay debt-free may face family emergencies that require access to credit immediately.
Understanding the importance that access to credit can be for families, last month, the Consumer Financial Protection Bureau (CFPB) updated these original regulations. Now, creditors are no longer required to only consider the consumer’s independent ability to pay for those credit applicants that are 21 or older. They can now consider income and financial assets that the consumers have “reasonable expectation” of access to—including a spouse’s income. The rule technically applies to both married and unmarried applicants, although it’s expected that it will strongly impact stay-at-home parents. Once the rule is implemented (credit card companies will have six months to become compliant with the new regulations), stay-at-home parents should use the opportunity to get a card in their name, and use it at least a few times to build up credit.
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