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If you've recently been laid off, signing up for a new credit card may help you temporarily.
In an emergency, credit cards allow you to purchase everyday expenses or even basic essentials like groceries, until your normal cash flow resumes. And if you use a 0% APR credit card while you're in between jobs, you could even get by without incurring interest.
While the best advice is to have a back-up emergency savings ready for scenarios like the coronavirus pandemic, there may be times when getting a credit card after recent unemployment makes sense — but how do you qualify for a credit card if you don't have a job?
"That's tricky," financial expert John Ulzheimer, formerly of FICO and Equifax, tells CNBC Select. "You don't need a 'job,' but you do need the ability to make payments."
According to the CARD Act of 2009, credit card companies are required to consider applicants' "ability to pay" before issuing new credit cards, or even increasing credit limits. This is meant to protect consumers from borrowing more than they can pay back.
But income doesn't always come in the form of traditional compensation like salary, wages and tips. There are other forms of income that could count if you decide to apply for a credit card during a crisis.
Below, we break down the other forms of income you can include on your credit card application to qualify — and three ways to continue building your credit if your current income isn't enough.
Employment income is an obvious illustration of your ability to pay your credit card bills. But if you don't have a job right now, there are other forms of qualifying income that you could include.
Forms of non-wage income you can list include:
If you have lost your job and you are collecting unemployment compensation, you can also count your unemployment benefits as income on your next credit card application. Because unemployment benefits are taxable, the IRS considers it to be income (or "benefits fully taxable as wages") — which means typically credit card issuers do, too.
The Consumer Financial Protection Bureau (CFPB) states that card issuers must consider "the consumer's ability to make the required minimum periodic payments under the terms of the account based on the consumer's income or assets and the consumer's current obligations."
This means card issuers are required to verify your ability to make payments, but you can list any of the above forms of income you are currently receiving. It's not likely that the card issuer will ask for you to provide proof of income, such as tax forms, unless you are a young borrower. But the best practice is to be honest so that your credit limit is appropriate. You'll want to make sure you can afford the minimum payments and stay out of debt.
Even if you recently got laid off, you can claim the income of your employed spouse or partner if you file your taxes as a household.
"If your spouse works, then you're allowed to include the household's income on your application," Ulzheimer says.
This wasn't always the case. Ulzheimer notes that when the CARD Act first became law in 2009, the "household" income provision wasn't in it — essentially leaving out any non-working spouses, or stay-at-home spouses, from getting a credit card.
If your income isn't enough to qualify you for a credit card on your own, there are a few options. Below, we turn to credit expert Beverly Anderson, president of global consumer solutions for Equifax, to help you learn about each one.
CNBC Select's top pick for the best secured credit card and the best starter credit card is the Discover it® Secured because cardholders can earn cash back as well as a matching welcome bonus at the end of the year. The Capital One® Secured is the best for a low security deposit upfront (as low as $49, based on your creditworthiness) and the First Tech® Federal Credit Union Platinum Secured Mastercard® is the best for a high credit limit (as high as $25,000, equivalent to your deposit).
Before you decide whether to apply for a credit card after being laid-off, it's important to understand how each of the options above can affect either your credit score and/or the person co-signing you or adding you as an authorized user.
"It is hard to show that you've demonstrated responsible credit behavior when a lack of credit history means you can't get credit — meaning a loan or a credit card," Anderson says. "Building credit history takes time, however, and responsible credit habits will translate into a positive credit history."
And if you don't get a credit card during this period of unemployment, ask about having your on-time rent, mortgage, utility or cell phone payments reported to the credit bureaus so that they appear on your credit report and potentially boost your score (services like Experian Boost and Experian RentBureau can help with this). Some card issuers might consider these payment obligations when you submit an application.
Information about the Bank of America® Cash Rewards credit card, Discover it® Secured, Capital One® Secured, and First Tech® Federal Credit Union Platinum Secured Mastercard® has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.