Well first things first: the post title though may sound gender biased but it is a reality. Second it actually means that how a non working spouse affects the credit report adversely but since we still have very few house husbands (non-working male partners) in India it make more sense to keep the title focused on housewives. Personally I don’t like the word housewife; I prefer the more modern politically correct homemaker but I’ll not let not my views cloud the relevant discussion here. The emphasis here is on providing useful information rather than being polite….
Let’s consider a few examples of couples applying for a home loan:
Mrs. and Mr. Sharma are a working couple and apply for a joint loan as they both have a good credit scores.
The Mehtas are also a working couple. Mr. Mehta’s score is not very good due to some dispute with a credit card company so they apply for a loan in Mrs. Mehta’s name who has a good credit history.
Mrs. Agarwal is a housewife and has no credit score so Mr. Agarwal applies for a home loan in his name. His loan is rejected due to a bad credit score so he is trying to improve credit score and apply for a loan in coming months.
In case the spouse is not working and has no credit score then there is no choice but to apply in the name of the sole earning member. While this necessarily is not a bad thing but it does limit one’s options.
Debt to Income Ratio Is Also Important:
Debt to income ratio is the ratio of the total monthly debts to the monthly income. If both partners are working and apply for a loan jointly incomes of both are clubbed together to determine the debt to income ratio. Obviously a higher income means higher loan eligibility and the converse is also true. There are different opinions about an ideal DTI ratio but it should in no case cross beyond 40%. Though not a part of the Credit Score it is equally important when applying for a loan.
Your loan can be rejected due to a high debt to income ratio also. Getting somebody to co sign can help solve the problem.
The Truth about Add-On Cards:
If you are a housewife and have an add-on card then it will be useful to go through the ensuing discussion. A person with an add-on card on his/her name gets a Credit Score of -1; usually the score ranges from 300-900. Thus this credit score has no relevance but your shopping with the credit card impacts the credit score of the primary card holder.
Exceeding the credit limit or utilizing it fully or almost fully regularly impacts the credit score negatively. Keep the credit utilization up to 40-50% of the limit amount so that you do not appear to be overtly dependent on credit or seem to be credit hungry. Having two credit cards with different cycles can help in spreading your monthly spending.
Do not convert your unpaid dues into EMIs though the credit card company may offer you lucrative options. This also impacts the credit rating negatively. Always remember to make payments before the due date. In case you have a habit of doing above then remember that since you the card is in the name of your spouse his credit history will get adversely affected.
Two earning members with two credit history have a choice of using the better one when applying for loans but not when only one member is earning. Thus the housewife’s shopping behavior especially when credit cards are involved is an important factor which affects the husband’s overall credit score.
A add on credit card also means that both the primary and secondary user must be in sync when they charge their bills on credit card. If both keep charging without informing the other about the transactions it can lead to a lot of trouble at the end of the month. Be sure to discuss with each other what you have charged on your card in a month so that the other can adjust accordingly.
Being a non-earning member absolves you from the responsibility of having to pay for the credit card bills but not from being financially aware and cautious.