Can you apply for a credit card while unemployed?

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As economic uncertainty resulting from the novel coronavirus pandemic grows, and consumers experience extended periods of unemployment, many people who rely on a regular paycheck face difficult financial decisions.

While it is important to be cautious about amassing large amounts of high-interest debt in a time of financial instability, a credit card can be an important long-term financial tool and offer assistance if you’ve lost your job.

Being unemployed doesn’t disqualify you from credit card approval; while issuers do ask for your income, you may offer alternative forms of income on your application. You should also keep other options for building and maintaining credit in mind while unemployed, which may be safer or more attainable than a credit card.

Here’s what you need to know about applying for credit while unemployed:

How to qualify for a credit card

When you apply for a credit card, credit issuers use a number of factors found in your credit report to determine your creditworthiness, and will ask for additional information such as name, address and income on your application.

In order to approve you for a credit card, issuers must assess whether the risk of issuing you credit aligns with their requirements. If you have a history of managing payments well and keeping accounts current, your credit score will reflect your creditworthiness. And your income helps issuers determine your debt-to-income ratio, which may predict your ability to make payments. This ratio will also help determine your credit limit if you are approved for a credit card.

What qualifies as income?

Your income does play a part in your credit application, but income is not just the paycheck you receive from a job. Income may be more loosely defined as any money you receive consistently.

This means there are other forms of income you can provide to help you qualify if you are currently unemployed. The 2009 Credit CARD Act allows anyone over the age of 21 to list any income to which they will have reasonable expectation of access, including income from your spouse or partner, funds accessed through a shared account and unemployment benefits. If you have investments, those returns may count towards your income. And if you receive Social Security payments, those can be included, as well.

Credit card options if you can’t qualify on your own

If you aren’t able to qualify for a credit card on your own, you still have options for accessing credit. Here are some other pathways to credit while you are unemployed.

Become an authorized user

Becoming an authorized user on someone’s credit card account can help you build your credit score while accessing a line of credit.

As an authorized user you will have access to a credit card through the primary cardholder of the account. You should also check whether the issuer reports authorized user activity to credit bureaus.

While you are not legally obligated to pay any balances on the credit card, you will likely have an agreement with the primary cardholder about how payments need to be made. You should also ensure that the primary cardholder is responsible about making payments on the account in full and on time. You won’t be legally obligated to pay, but missed payments could negatively affect your credit score.

Get a co-signer

If you know someone who has a good credit score and steady income, you could ask them to act as a co-signer for you.

A co-signer essentially uses their own creditworthiness to help you obtain a credit card. You will be the primary cardholder and responsible for making all payments on the card. However, if you’re unable to pay, the co-signer will be requested to do so. If this is an option you are thinking about, make sure that you have a clear agreement with your co-signer beforehand.

Secured credit cards

Secured credit cards can be easier to get than unsecured credit cards because they require a deposit, which acts as your credit limit.

Your credit score and your income may be less influential factors than they are for most cards; instead, your ability to guarantee the required deposit is essential. If you do decide to go this route, look for a card with low fees and read the terms carefully. You should also ensure that your payments are reported to the credit bureaus so you can continue building good credit.

Joint accounts

You may also choose to apply for a joint credit card account with someone, such as your spouse. With a joint account, both potential cardholders apply and undergo a credit check. However, income is considered jointly.

The primary downside to opening a joint account is that your options are much more limited: few credit card companies offer joint accounts. It’s also important to understand the obligations of joint accounts before applying for one. While both parties share the responsibility of making payments, both parties will also take the blow for any missed payments.

Bottom line

Unemployment can present some scary financial uncertainties. However, there are tools out there that can help make ends meet until you find employment again.

And if you’re able, using a credit card responsibly can help you establish good credit now, which you can grow once you are employed again. As long as you are using credit carefully and avoid taking on debts you can’t pay off, you’ll reap the benefits of having a credit card over time, such as positive credit score effects and the ability to access issuer perks and rewards.