Does federal law make it harder to obtain credit after divorce?

When a couple is preparing for divorce, it is generally recommended that each spouse open a credit card in their own name only, in order to begin (or continue) building credit and improve their credit score. Unfortunately, a federal law that was passed in the wake of the recent economic recession may make this impossible for some spouses, especially those who do not have a steady income and rely on their spouse to pay the bills.

The law in question is the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which is better known as the CARD Act. The law, which was passed with college students in mind, aims to protect consumers from financial ruin caused by credit card debt. While this is certainly a worthwhile goal, one aspect of the law has had unintended and highly negative consequences on divorcing spouses, particularly parents that have given up their jobs and careers in order to stay at home with their children.

Under that clause, credit card companies cannot approve card applications that are made on the basis of family income that the applicant has not earned him- or herself. As such, people who do not have an income are prevented from obtaining credit cards and are unable to take that necessary step toward building a good credit score.

Last fall, however, the Consumer Financial Protection Bureau proposed a change to the CARD Act that appears to rectify this problem. Under the revision, spouses who do not work will be able to apply for credit card in their name based upon the total income of their household.

Source: Forbes, “Five Best Financial Tips for Women Divorcing in 2013,” Jeff Landers, Dec. 18, 2012