They’re easy to carry, come with features galore and seem like free money at the cash register -- until the bill comes. Welcome to the wonderful world of credit cards. In the past, companies have granted credit cards to people with no income. Then came the Credit CARD Act of 2009. While there is no minimum income amount required to qualify for a credit card, there are standards.
The Credit CARD Act of 2009
The Credit CARD Act of 2009 was designed to rein in credit and encourage financial institutions to provide credit only to those who can truly afford it. Under the law, which took effect in February 2010, no one under the age of 21 can be approved for a credit card unless they either show proof of sufficient income to pay the bill or obtain a co-signer, such as a parent, guardian or spouse. The bill also addresses fees, minimum payments and rate increases.
How Much Can You Afford?
The new rules require lenders to verify that the borrower can afford to pay for the maximum limit on the card. It is up to the lender to determine how much the borrower can afford. Lenders get this information via a new set of statistical tools that estimate a borrower’s income based on credit bureau information, employment information, IRS tax databases and the credit card application. If you have an income of $25,000, for example, the lender may decide that you would be able to pay off a credit card with a $2,000 limit. If you have income of less than $10,000, the lender might decide that you qualify for a credit card with a $500 limit.
Check the Checking Box
Another important key to obtaining credit is an established checking account. Many lenders frown on applicants who don’t have a viable way to pay their bill. By showing that you have a checking account, you show a potential lender that you can write a check or pay online with funds coming from your checking account. It also helps to have a savings account. Even if you’re only able to keep a small amount in savings, it’s nice to be able to check the box on a credit application that says “yes” to both checking and savings accounts.
Other Helpful Information
When applying for a credit card, you’ll need the usual information, such as name, Social Security number and mother’s maiden name. You’ll also need to indicate how long you have lived at your current residence and how long you’ve been at your current job. In both cases, the longer, the better, as it shows stability. Using credit responsibly will help you establish a positive credit history -- a must when you want to buy a car or purchase a home.
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