While it may be possible to get a credit card when you’re out of work (depending on the lender), the choice of cards available to you may be limited.
You’re also unlikely to be offered the most competitive interest rates on the market.
Although your income is a major deciding factor for lenders, they will also look at your credit history to work out whether you’re a reliable borrower.
If you do decide to take out a credit card, you must be sure that you can afford to repay what you spend.
One of the main things a lender will consider when you apply for a credit card is whether you can afford your repayments. If you’re not employed, this will immediately set alarms bells ringing as it raises the question of whether you can afford a credit card.
However, your income may come from your spouse or another source, like benefits. You may be asked to provide evidence to support this to the lender.
We would say think carefully before applying for a credit card if you’re unemployed. If you start to miss payments and keep on spending, the debt could quickly mount up and will be very difficult for you to clear if you don’t have enough money coming in.
Why do you want a credit card?
There are many reasons why you might choose to take out a credit card. When used responsibly, it can be a more affordable way of spending, without overstretching your budget.
If you’re currently between jobs, you may want to use a credit card to buy clothes for a new job or pay for a car to get there. Or perhaps you just want to keep it in case of emergencies.
"You should only take out a credit card if you can be certain that you won’t struggle to keep up with your repayments."
Credit cards come with an extra layer of protection, known as Section 75. This is a key benefit of using this type of card when buying high value items.
Under Section 75, which is part of the Consumer Credit Act 1974, your credit card provider is equally responsible with the vendor to provide you with a refund if your purchase is faulty or the company you buy from goes out of business.
Of course, there are exclusions to Section 75, one being that your purchase must be worth over £100. You can read more about when Section 75 covers you here.
Whatever the reason, you should only take out a credit card if you can be certain that you won’t struggle to keep up with your repayments.
Not having a regular income from a job may result in lenders seeing you as a risk. Some lenders may only accept you on a lower credit limit or a higher interest rate as a way of minimising this risk. This is why it’s important to shop around to weigh up your options.
There are ways you can check your eligibility for a credit card. Free credit-checking services like Noddle, ClearScore and CreditMatcher let you compare products for which your credit history and circumstances make you eligible.
Check your budget
So you’re set on taking out a credit card, what next?
Well, it’s important to check your budget. Take a look at what you spend on your essential bills – so your rent or mortgage, utility bills, your grocery shopping and so on.
"If you’re late or miss any repayments, you could be charged and your credit history will be affected."
The thing is, if you’re unemployed, you may already be stretched to afford all of your outgoings, without adding another payment to the list. You must carefully consider this – because lenders will too.
By looking at your budget, you’ll know whether you can realistically afford your monthly credit card payments. And, as long as you make at least your minimum repayment each month, you will see your credit history gradually improve. You should try to clear your credit card bill in full, otherwise you may find the interest stacks up.
Remember, if you’re late or miss any repayments, you could be charged and your credit history will be affected. This will make borrowing in the future more difficult.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.