Being a stay-at-home parent comes with many perks, including more time to spend raising and shaping the little ones in your life. But it can also come with some unique challenges regarding credit. Whether you seek out credit cards to build credit or you make sure current accounts in your name remain open, there are ways you can start today to improve your history and score.
Why credit is important
Credit is essential for many things. From applying for a loan to submitting a rental application, this number is often factored into the equation. This is also the case if you apply for a joint loan with someone else. A poor credit score or slim credit history on either party’s end could affect the rates and terms offered to you.
It’s also important to take life’s unknowns into account. While it’s difficult to think about, things like the passing of a loved one or divorce can result in you having to depend solely on your individual credit. If this occurred, would you be able to get approved for a loan with a favorable rate?
Next steps to take
The Consumer Financial Protection Bureau (CFPB) made it easier for stay-at-home parents to get credit cards by allowing credit card issuers to recognize income made by a spouse as shared income.
While you may meet income requirements through this amendment, you should still be mindful of your credit score and history. Lenders like to see a track record of on-time payments, a reasonable credit utilization rate (under 30% – more on this later), and a diverse credit background (auto loans, credit cards, etc.). If your score or credit history aren’t satisfactory, a lender may reject your application or offer a card with a higher annual percentage rate (APR). The latter could lead to debt that snowballs after any missed payments.
Keep in mind that revolving your balance month-to-month can also lead to debt accumulation. This is because you’re charged interest on the balance you revolve.
A secured credit card may be the ideal option for stay-at-home parents with poor or minimal credit history. This option is backed by a deposit you make, which is then used as collateral in the event of missed payments. Your credit limit (the amount you have access to) is generally the deposit amount. So if the card is backed by $500, your credit limit is $500.
If you have an existing card open in your name, it’s best not to close it (or let it fall into inactivity and get closed for you!). The total amount of credit available to you helps determine your credit utilization rate. Say you have two cards: Card A has a limit of $500 and card B has a limit of $1,000. Between the two cards, you have a balance of $250. This would make your credit utilization rate 16%. But if you close card B, your credit utilization rate skyrockets to 50%. Like we mentioned above, lenders like to see a utilization rate of under 30%. Anything more indicates you’re dependent on the line of credit.
In short: While you and your spouse may consolidate a lot of your finances, it’s helpful to have cards open in your name so you can continue establishing good credit history.
If you don’t want to use your credit cards a lot – that’s OK! Try using one to pay for small-dollar monthly items like a streaming service so it’s used consistently.
General Electric Credit Union’s Classic Secured card is an attractive option for anyone looking for credit cards to build credit. Enjoy access to funds with no annual fee1 and a minimum deposit of $300. Then, set up account alerts in Online Banking or our mobile app to ensure you’re always on top of payments. Or, opt for our Gold card to start earning unlimited cash, including 2% back at U.S. supermarkets and wholesale clubs!2