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Laid off or unemployed? Here's how to qualify for a credit card when you've just lost your job

If you've recently been laid off and you're wondering if you can apply for a credit card, the good news is you may qualify. Here's how to get a credit card if you're out of work.

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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.

You can list alternative income sources on your application (including your unemployment benefits)

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:

  • Your investment returns 
  • Rental property income
  • Trust fund payouts or inheritances
  • Any child support you receive
  • Alimony payments you receive
  • Social Security payments
  • Public assistance
  • Retirement distributions

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.

If you're married, you can claim your spouse's income

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.

The 3 ways to build your credit if your current income isn't enough

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.

  1. Get a co-signer: "A co-signer is a person who agrees to be legally responsible to pay a debt if the borrower does not pay back a loan as agreed," Anderson says. This may be a parent, a legal guardian or a spouse, but note that they are just your back-up. Not every card issuer allows co-signers, but some do. For example, the Bank of America® Customized Cash Rewards credit card allows for co-signed cardholders and offers 3% cash back in the category of your choice, 2% cash back at grocery stores and wholesale clubs (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases, then 1% thereafter). To find out if your preferred card issuer allows for co-signers, you can call customer service and ask.
  2. Become an authorized user: "As an authorized user on someone else's credit card account, you'll receive a credit card in your name, linked to the primary account owner's credit card account," Anderson says. Consider asking a friend, partner or family member if you can be added as a user to one of their credit cards.
  3. Get a secured credit card: This is a good way to build credit if your score has taken a hit or if you are just starting to build credit, and secured credit cards are typically easier to qualify for with less strict income requirements. But, you need enough disposable savings to put down a deposit. "A secured credit card requires you to make a deposit upfront, possibly the same amount as your credit limit," Anderson says. Typically, secured cards have lower credit limits and are meant to be used conservatively to build good credit habits and increase your score. Your security deposit is usually refunded when you upgrade to an unsecured credit card, assuming your balance is paid in full.

CNBC Select's top pick for the best secured credit card and the best starter credit card is the Discover it® Secured Credit Card because cardholders can earn cash back as well as a matching welcome bonus at the end of the year (for new card members in the first year only). The Capital One Platinum Secured Credit Card (see rates and fees) is the best for a low security deposit upfront (as low as $49, based on your creditworthiness) and the Platinum Secured Mastercard® from First Tech Federal Credit Union is the best for a high credit limit (as high as $25,000, equivalent to your deposit).

Consider the impact to your credit history and credit score

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 FICO® Score (features like *Experian Boost™ and Experian RentBureau can help with this). Some card issuers might consider these payment obligations when you submit an application.

Don't miss: Credit card applications have dropped by 40% amid coronavirus—here's when to apply for a new card

Information about the Bank of America® Customized Cash Rewards credit card, Platinum Secured Mastercard® from First Tech has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.

For rates and fees of the Discover it® Secured Credit Card, click here.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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