Molly wants a new credit card and has her sights set on one issued through a community bank. But there’s a problem: She doesn’t have an income, at least not in the traditional sense.
“My income is almost all from investments,” she wrote in an email. “My business actually runs at a deficit, and gross income isn’t that much ($20,000 maybe). What do I put down for my income? A major source of cash flow these days comes from selling assets… My income tax return actually shows a fair amount of income (mostly coming from a business partnership, secondarily from capital gains).”
Molly told me she is worried about potentially hurting her credit by applying for a card she can’t get, but is afraid to contact the bank directly for fear of saying the wrong thing and being denied.
Cash Rich, Credit Poor?
Is it possible to get this credit card without much income? Her question is relevant to others who may not get a regular paycheck because they are retired, self-employed or stay-at-home parents.
Molly wants the Green America card from Beneficial State Bank, an affinity card issued through TCM Bank, N.A. We spoke with James K. Simon, Jr., senior vice president and chief lending officer for TCM Bank, to get his insights into the application review process.
First, he pointed to federal law, specifically the Truth in Lending Act, section 1026.51(a)(ii), which provides for the type of scenario described. It states that “Card issuers must establish … reasonable policies and procedures to consider a consumer’s independent ability to make the required payments includ(ing) at least one of the following: the ratio of debt obligations to income; the ratio of debt obligations to assets; or the income the consumer will have after paying all debts.”
Operating within that framework, the bank offers a couple of options for those with non-traditional income.
One is to give the applicant the opportunity to provide information about income other than a salary or regular paycheck. In addition to the monthly income section on the application there is a second field called “sources of other income” which is where borrowers can list other types of income, including non-salary items like dividends and interest from investments.
Consumers sometimes find that confusing, says Simon. “It’s a big challenge,” he admits. “People naturally assume that’s a paycheck.” Other income could include the type of income Molly described, or it could even include a spouse’s income if that income is available to pay the debt.
A Second Chance
There is also an opportunity to provide additional information. “If an applicant is turned down based on an inability to repay the loan, TCM will reconsider a decision should an applicant receive their declination letter and be able to provide information or documentation showing liquid assets (i.e. deposits in money market accounts, certificate of deposits, etc.) that are generating minimal income in this low-interest-rate environment, but are available to service debt should the need arise,” Simon said.
With other issuers, there is often a “reconsideration” department consumers can contact if they are declined for a card. “Credit card applicants can ask to be reconsidered after they have initially been rejected,” says Credit.com credit card expert Jason Steele. “Doing so causes the card issuer to review the application manually, which can sometimes result in approval. Otherwise, applicants can report additional income not included in the original application, or they could even pay down balances since the original application.”
In other words, not having a regular paycheck doesn’t necessarily mean you can’t get a credit card. But you do have to be able to demonstrate that you can pay back the funds you borrow. And to do that, you’ll need to show that you have income, assets or both.
If you aren’t working and don’t have savings or liquid assets (such as retirement accounts or investments), you may still be able to get a credit card if you have other sources of income, such as alimony, unemployment or disability income. If you have a spouse who is working and whose income you share, that can count. In other words, think broadly. If you truly have no source of income or assets that could be used to pay the debt, then you may want to consider other options such as getting a co-signer or asking a relative to add you to one of their accounts as an authorized user.
And of course your credit score will be just as important as your income — maybe even more important — since a credit score is readily available to an issuer. If your credit score is really poor, you may find it impossible to get a traditional credit card, no matter how much money you have. If you’re in that boat, you may need to get a secured credit card.
That’s why, before you apply for a credit card, car loan or mortgage, it’s not a bad idea to get your free credit report from all three credit bureaus to make sure they are accurate. And by all means, review your credit scores so you have an idea of where you stand. You can get your credit score for free at Credit.com, along with an action plan for your credit.
More on Credit Cards:
- 6 Smart Credit Card Strategies
- How Secured Cards Can Help Build Credit
- How to Get a Credit Card With Bad Credit