Credit cards are exceptionally handy things to have around for many reasons. They’re great for emergencies, plus they can help you build up credit. Perhaps you’re fresh out of college and hitting the pavement in hopes of finding a new job, or perhaps you’ve recently lost a job and are searching again after a few years in the workforce.
Whatever the scenario, you might be wondering, can you get a credit card if you’re unemployed? Yes, you can. You can even get one if you’re a housewife (read all about that here!)
Unemployment doesn’t mean you can’t get a credit card. There’s a lot more to the decision-making process for those credit card issuers than whether you’re got a job or not. Truth be told, they are much more interested in your income than what you do for a living.
If life isn’t going your way right now, keep reading and I’ll shed some light on what those credit card issuers ARE looking at, how you can successfully get approved for a credit card even when you’re unemployed, and which cards I recommend you apply for during this period of unemployment in your life.
What credit card issuers look at
So, I just said before that the credit card issuers care more about your income than your job. They don’t care what you do (or did, or have yet to do) for a living. What they look for is your credit score, credit history, and a thing called the debt-to-income ratio.
I’m going to break each of these down separately below.
– Credit score
A credit score is a 3-digit number that is used by creditors to determine your reliability in regard to paying back your obligations. On the low end, someone with terrible credit would have a score of 300. On the high end, that number is 850. Obviously, the higher your credit score, the better chances you’ll have of being approved, whether you’re employed or not. Remember, there are plenty of people with jobs that have bad credit!
This score is determined by your credit history (more on that in a moment), and income requirements can be met even without listing a job on your application if you have any other money or income to list (like that of a spouse for example…again, see my post about how housewives can get credit cards).
If your income comes up as less than the required amount, there are still ways to build credit or maintain existing credit standing. We’ll touch on those later on so keep reading.
– Credit history
Credit history is where your credit score is derived from. It is a record composed of all the credit accounts you’ve had over the last 7 years. It includes details like the type of account you had, whether you were a joint account holder, the credit limit or loan amount, any balance, the minimum payment, any late payments, and the status of that account in current terms. When this is analyzed by the three credit bureaus, a number is generated, which is your credit score.
– Debt-to-income ratio
Sometimes, you might apply for a credit card but get denied even if you have good credit. This happens when your debt-to-income ratio (which you may see noted as ‘DTI’) is high. This ratio is important, but it might not hinder your credit score. This is one of the big deciding factors when it comes to whether or not you’ll receive that credit card.
This ratio shows how much you’re spending per month on your debts (so all your bills, mortgages, car loan, etc.) compared with what you’re bringing in monthly with your income. It’s converted into a percentage. When your DTI is less than 30% to around 36%, this is considered low debt, which is good. You have a little wiggle room here, but generally speaking, if that number is 40% or above, the lender thinks of you as a high risk, even if your credit score is high.
DTI is basically even more important than your credit score. Keeping this ratio in a good range will ensure approval on your credit card application.
But wait…how do you do that when you’re unemployed? Keep reading and I’ll show you how!
You can list other types of income on your credit card application
Just because you don’t have a job (yet!) doesn’t mean you don’t have any income. You likely have some kind of income you’re relying on while you’re unemployed. For those of you over 21, you can list the household income you have what they call a “reasonable expectation of access” too, which would mean income coming from your spouse (if you’ve already married) or even via your parents (if you’re living at home).
But even in the absence of loved ones in your life whose income could help bolster your DTI, you can also use investment returns, Social Security payments, or if you were let go from your job, you could also list unemployment benefits on your credit card application. The credit card companies don’t care what you do for a living as long as you can prove you have some access to income, your credit history is in good standing, and your DTI is low. Once approved, your credit limit is contingent on the income you have access to and that DTI.
The Credit CARD Act from 2009 requires all lenders to consider you fairly by looking at your ability to make payments when you submit an application for a credit card. Some will look into your other obligations, things like a mortgage, rent, other debts, or even alimony that you owe (or that is owed to you).
This CARD Act also helps protect those first starting out into the world of credit. It once was the case that cards were given out more easily which led to lots of debt being accumulated. The law then worked against housewives but was corrected to help housewives (as well as anyone else that might not have a job outside the home) get approved under the right circumstances.
How to get a credit card when you’re unemployed
If you need a credit card during your time of unemployment to help you cover the unexpected or to build up your credit, there are ways of getting one. Here’s what you can do to get a credit card when you’re unemployed.
– Get a co-signer
I should specify here that this co-signer should have a good credit score and a steady income. Family (like your parents or your spouse if you’re married) are your best options here, though you can ask a friend in the absence of any family that can help you. This person must be agreeable to make the payments if you can’t, which might be a big imposition on a friend. It’s a big imposition to ask a loved one too, so you should be prepared to be responsible and make payments on time so you don’t ruin their credit score. Side note: You’ll ruin yours too if you get a co-signer and don’t live up to your promises.
– Join someone’s card as an authorized user
Another option to ask family or friends is if you can become an authorized user on one of their credit accounts. You get your own card with your own name but it’s linked to their account. Again, they are responsible for the payments but you can make an agreement where you set a spending limit and stick to a payment plan. If you don’t, you will hurt their credit score, and as with co-signing, you’ll wind up wrecking yours too. Plus, depending on the card, the issuer may report your credit activity as an authorized user to the credit bureaus so it’s wise to practice good habits.
– Get a secured card
Secured cards are another option that may help if you have some money saved up. You can use your own money as a security deposit which the card issuer holds as collateral. So if you don’t pay your bill on time, you lose it. The amount of credit you get is equal to the amount of your deposit. In most cases, they will approve you for a secured card because of the collateral with the deposit. The income requirements generally aren’t as stiff and once you upgrade to a regular card, you can get your deposit back.
How to protect your credit rating when you’re unemployed
With the economy as unpredictable as it is right now, it can be very unsettling to lose your job. You might be wondering what you can do to avoid ruining your credit rating during the time you’re unemployed. Keep reading and I’ll walk you through it.
– Pay what you spend on your credit card immediately
I always recommend, whether you have a job or not, to only spend what you can afford in cash. If you put this on your credit card and pay it off fully, you’ll get the rewards AND boost your credit score. You should keep whatever you spend to no more than 30% of your credit limit.
Before applying, you should think about the kind of money or income you have access to that would allow you to repay what you put on the credit card. If you have savings, that should help but if not, unemployment usually means you’ll need to keep your budget tight to pay those bills or else you’ll drag your credit standing down.
Take a look at your bank statements and see how much cash you feasibly have left after paying all your bills for the month. If you have enough to make payments on a credit card, then this will be a good option. If not, you don’t want to fall behind on repayments, incur penalty fees, and ruin your credit history, especially if it’s currently in good standing.
– Consider payment protection
You may want to go ahead with a credit card though if you get payment protection. You pay a fee and this payment protection insurance will put your payments on hold for a designated amount of time. This can give you peace of mind if you’re going through a hard time.
– Get your credit report
You should always know your credit standing. Before you start looking for new work, you should get those credit reports from the three credit bureaus. They’re free (when you get them once per year) and this way, you can check out if there are any errors on your credit report to get them corrected first.
– Communicate with creditors
One of the worst things you can do is hide from your problems. It’s definitely upsetting to be out of work, but if you want to make things a bit easier, call your creditors and let them know. Many will work with you, especially if you have never been delinquent before.
– Don’t get tons of cards
You might think that getting a bunch of new credit cards after you lose your job will help you have more credit on hand. And while that is true, when you apply for too many of them, it makes it much more likely that you’ll rack up more and more debt that you can’t afford. Get one and keep your credit in good standing!
Which credit cards to opt for when you’re unemployed?
That being said, there are certain credit cards that will serve you better than others. If you want to keep your credit in good standing or at the very least keep it from tanking, you should take a look at these cards I’ve found for you. They are the best ones to apply for when you’re unemployed.
– Capital One Secured Mastercard
Remember what I said about secured credit cards? This one by Capital One can really help a lot, especially if you need it for an emergency. You can get a $200 credit limit by making a minimal deposit of just $49 if that’s all you’ve got. Additionally, you could put down $99 or $200 if you can. When you pay 5 monthly payments on time, you get rewarded with a higher credit limit and can start building credit, without having to add an additional deposit to the amount.
There are no rewards, but because the security deposit is incredibly low and there are no annual fees, you can build better credit in your own name. This is a great credit card to apply for if you’ve lost your job, or if you’re in that between period after college before finding your first “grownup” job.
In summary, the Capital One Secured Mastercard gives you:
- No annual fee
- Credit-building benefits when used responsibly
- Regularly reports your credit standing to the three credit bureaus
- Allows for a low security deposit
- Increases credit line with 5 monthly on-time payments
– Discover it Secured
How would you like to make money right now? That’s what the Discover it Secured does for you, not a bad option if you’re unemployed. This secured card has no annual fee and is a cash back card that gives you 2% when you spend at gas stations and restaurants (maximum of $1,000 per quarter). Your cash back is matched at the end of the first year.
So maybe you’re not going wild buying things when you’re unemployed, but you most likely need gas for your car to get to job interviews and the like. My feeling is why not get something in return?
You’ll be building credit and getting money back. Make sure you’re paying your monthly bill on time to keep that good credit up. And if you have bad credit, it’s still possible to get this card. There is one catch, and that’s a $200 minimum deposit. But considering you’ll gain money out of it, it’s not such a big deal.
In summary, the Discover it Secured gives you:
- No annual fee
- Cash back of 2% when you spend at gas stations and restaurants (max $1,000/quarter)
- Builds good credit
- A minimum security deposit of $200 required
- Can get even if you have bad credit
– HSBC Gold Mastercard® Credit Card
Another credit card I’d recommend for the recently unemployed is the HSBC Gold Mastercard Credit Card. It has a couple of extras that you may find very useful once you do get employed again as well as some that will help you right now. It’s a great card if you’re trying to reduce debt. The generous introductory APR is a big help though it does have a 4% transfer fee, or $10 depending on which is greater, which is a little higher than others.
It won’t earn you any rewards, but there are some perks once you do get back on your feet and get a chance to travel (for business or pleasure). There are no foreign transaction fees and travel accident insurance. There’s also price protection and an extended warranty. Emergency roadside services though is one benefit that can give you peace of mind right now as you’re looking for new employment.
Initially, you’ll enjoy the first 18 months without any interest though that will increase to 13.24, 17.24 or 21.24% after that (each contingent on your credit score). But if paying down that debt is a concern, it’s a great idea to buy yourself some more time. Just watch that transfer fee as it can add up when you have a large balance going.
While it does offer a one-time late penalty waiver (per year), you should watch out for not going over 60 days late during that 18-month intro period or you’ll run the risk of losing the 0% APR. This card benefits you the most when you make your payments steadily and on time while getting the balance down before that 0% ends.
In summary, the HSBC Gold Mastercard gives you:
- Introductory 0% APR for both purchases and balance transfers in the first 18 months
- Variable APR ranging from 13.24 to 21.24% applies after that
- No penalty APR
- Late fee waiver once per year
- No annual fee
- No liability for unauthorized purchases
- No foreign transaction fees
- Great for reducing debt
– Indigo Platinum Mastercard
If you want to build your credit, the Indigo Platinum Mastercard might be the way to go. It reports to all three of those major credit bureaus which is good when you’re making payments on time. For those of you with good credit, you might not have to pay an annual fee, however those with bad credit will have annual fees that could be $59 or $99 depending on your current credit situation.
However, if you’re a new cardholder, that annual fee is only $75, for the first year. Be forewarned that the card features an interest rate of 23.9% APR, usually what they charge for those with poor credit so if you get this card, you’ll want to pay the balance right away to avoid incurring expensive interest charges.
One thing I like about this card though is you can pre-qualify for it without it affecting your credit score. Every time someone runs a credit check on you, it puts a temporary ding in your score. This isn’t very significant if you have good credit, but for anyone with bad credit, it can just make things worse. By getting the chance to see if you qualify and what annual fee they’d charge you, you’ll be able to make a better decision with no strings attached and no damage done.
The credit limit is only at $300 which seems like a lot of trouble to go through to get such a low amount, however, when your situation is dire and you have no other way of obtaining credit, you can start building credit with this card. It also offers a 1% foreign transaction fee and while some cards don’t impose fees abroad, if you can’t qualify for anything else, it’s going to help you step in the right direction.
In summary, the Indigo Platinum Mastercard gives you:
- Pre-qualifying without any damage to credit score
- Can get even if you’ve had a previous bankruptcy
- Quick and easy pre-qualification process
- Free online access that’s mobile-friendly
- Fraud protection should your card be lost or stolen
Starting out after college is tough. So is losing your job. When you need a way to have protection to pay bills or buy what you need, a credit card can help. You can build up credit if you don’t have it or use your good credit standing to help your situation until the job tides turn. These cards can help so look into them!