Military Spouses and Credit Cards

We all know how important it is for military spouses to hold down the fort while their loved ones are serving our country.  However, those lucky enough to have the financial freedom to be homemakers – taking care of the kids, managing finances, and serving as an important cog in Family Readiness Groups (FRGs) – unfortunately have a new obstacle to accomplishing their duties:  a potential inability to garner access to credit.

The Federal Reserve implemented a new rule in October of 2011 that requires credit card companies to consider individual income, rather than household income, when evaluating credit card applications.  The new rule prevents stay-at-home spouses from building credit in their own names, which is important to financial independence and prevents military spouses from starting over (credit-wise) in the unfortunate event of divorce or death.

Credit cards are an effective credit building tool, reporting information to major credit bureaus on a monthly basis.  A history of on-time payments and low credit utilization (using less than 30% of your available credit) can have a positive effect on a consumer’s credit score, impacting interest rates on home and auto loans and eligibility for apartments and employment.

In the wake of new restrictions, what can a stay-at-home military spouse do to build a credit history? Here are three ways to build credit, despite new rules.

  1. Apply jointly with your spouse. All activity, positive and negative, will be reported to the credit bureaus for both you and your spouse.
  2. If you have significant assets (money in the bank, property, investments), you may be approved for a credit card based on these assets. Be sure to list them on your application.

You can also open a secured credit card at your local bank or credit union. A secured credit card is a credit card that is backed by a deposit. For example, you deposit $500 for a line of credit equal to your deposit. Use $50-$150/month and pay it off, on time every month. This will help you build a credit history, because every on-time payment will be reported to the credit bureaus. As long as you make on-time payments and only use a small portion of available credit, you will successfully develop your own, positive credit history.

If you are opening joint credit with your service member spouse, remember to make on-time payments and keep your debt-to-income ratio low. Debt and poor credit can have a negative impact on your spouse’s security clearance. Debt and your security clearance are like oil and water: they don’t mix!