I am a housewife who does not work outside of my home. The only income I have on my own is my social security, which is not a lot. My husband and I have had bad credit in the past. I want to take out credit on my behalf. Is there any way to do this?
First, let’s separate your creditworthiness from your husband’s. You may have shared accounts in the past, and if payments were late, both your credit reports and your scores would be tarnished. But your credit reports, which are used to count your credit scores, are your own.
While a spouse can certainly help or harm your credit building efforts, ultimately the only way to build credit is by your own name. Unless you have a co-signer or apply for a card or loan in both names, only your history will be considered when you apply for credit.
It is important to think about your goals here. Trying to rebuild credit so that you can get approved for a mortgage or car loan yourself is likely to be difficult without a job. But if your goal is simply to get your credit back, I think you are in good shape to do so gradually.
The easiest way to build up credit is with a credit card. You don’t need a job to get one. What you need is income. Your social security benefits may not be much, but they still count. If you have a joint bank account with your husband, to which his paycheck is deposited, or if he regularly pays money into your account, you can count this money as income as well.
Applying for a secured credit card, whether you’re building your credit back up or starting over, is always a good move. You make a deposit – usually $ 200 to $ 500 – and use that as a line of credit. During these troubled times, not everyone can save hundreds of dollars on a deposit. If that deposit were to default you on bills, now you can’t afford to worry about your credit. Focus on building an emergency fund before you apply.
If you can afford to deposit, Capital One and Discover usually have good secured card options. (No, nobody paid me for it.) Because you put this deposit on, the credit and income limits are much less strict. Some cards allow you to automatically use a regular card once you have made a certain number of on-time payments.
Look for a card with the lowest annual fee and interest rate possible. Of course, you want both to be as low as possible. Hopefully, you’ll pay off the balance each month so the APR doesn’t matter to you. Also, make sure the card issuer reports to all three offices so that you can keep a credit history.
The most important thing you can do is pay the bill on time each month. Payment history is the most important credit factor and determines 35% of your score.
You also need to be careful about how much you charge. Your credit utilization, or the percentage of outstanding credit you use, makes up 30% of your score. I would recommend making a small purchase each month that you would make, card or no card, that cost no more than 10% of the card limit. Then you pay it off in full every month.
If you do everything right, your credit could improve in six months. Any negative information on your reports, like late payments or accounts going to pick up, will stay there for seven years, but the damage will start to fade after two years.
The key to fixing bad credit is to make sure that you have fixed any underlying issues, too. Some people have credit problems because of a crisis that was beyond their control. If over-spending has been an issue in the past, make sure you have a plan that will allow you to cash out on every purchase you make each month. Living without credit like you do now is difficult. However, you need to limit your spending to what you bring in. Make sure that once you have better access to credit, you don’t change your spending.
One thing you won’t tell is whether your man wants to fix his credit too. While your credit reports are separate, it becomes a lot easier if you both share this goal. It is important that you budget together and hold each other accountable. Encourage your husband to apply for a secured credit card as well. All of the disciplines in the world on your side will not go far if you are not in it together.
Robin Hartill is a certified financial planner and senior editor at The Penny Hoarder. Send your tricky money questions to [email protected]