Most young women can’t imagine applying for a credit card or loan and being denied because of their gender. But access to capital is a relatively modern right for women.
Don’t take it for granted: Here’s how women got credit and how to make the most of it.
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Access to Credit Is Essential
Credit is a basic tool of financial independence. Regardless of marital status, women need credit in their own names to build credit.
“With credit comes power,” points out Stacy Feiner, business psychologist and coach. “When women establish financial security, they can feel more comfortable planning for the future and taking risks like starting or growing a business.”
You never know what life will throw at you: divorce, death, illness, job loss. Without credit, managing through challenging scenarios and even making ends meet in tough times can result in financial ruin.
“Women without financial means have fewer opportunities than men in situations where they need to build or rebuild financial security,” Feiner says. “This can breed dependence, which increases physical and emotional lack of safety.”
Women Lacked Credit for Centuries
Some people may be surprised to learn that the ability of women to access loans and make financial decisions is fairly new.
At the turn of the 20th century, married women were not considered legal entities independent of their husbands, which resulted in women’s financial subservience, says Hermina Batson, president-elect of the Financial Women’s Association of New York. Women could not manage their own income, enter into contracts or own property separate from their husbands.
In 1839, Mississippi became the first state to give a married woman the right to own property in her own name, and New York followed in 1848 with legislation that became a model for other states.
“But it took decades for women across the country to gain full control of their property, savings and earnings,” Batson says. “Financial discrimination continued well into the 1970s.”
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Giving Women Credit: Breaking Down Barriers to Financial Freedom
Some significant advances in financial equality for women came in the 1970s with a landmark Supreme Court ruling and a new law prohibiting discrimination in lending.
In 1971, the Supreme Court in Reed v. Reed for the first time struck down a law for treating men and women differently. The case, argued by Ruth Bader Ginsburg, challenged a rule that preferred men over women to administer estates and gave a grieving mother the right to administer the estate of the son she lost.
A few years later, women were given the same access to credit as men with the Equal Credit Opportunity Act of 1974. That meant a woman no longer needed a male co-signer anytime she applied for credit.
When it was enacted, the ECOA banned lending discrimination based on gender or marital status. Congress later amended the law to prohibit discrimination in lending based on race, color, religion, national origin, age or income.
The ECOA allows consumers to use household income when applying for credit, which opened the door for women who did not work outside the home to get credit. Also, creditors evaluating income may not reduce it based on gender or marital status.
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Own and Grow Your Credit
Today, women are largely on par with men when it comes to credit. Women and men have nearly the same average FICO score: 704 and 705, respectively, according to Experian’s “Women and Credit 2020” report.
“Women carry less debt across all categories, except for student loans,” Batson says.
Not sure what your FICO credit score is? In response to the coronavirus pandemic, the three major credit bureaus are offering free weekly access to your credit report through April 2021 at AnnualCreditReport.com.
Along with monitoring credit, taking these steps can build your financial confidence:
Get credit in your own name. Don’t hesitate to open credit cards or loans in your own name because this can help you build or maintain your credit rating. If you’re an authorized user with a high credit score, jump on the opportunity to get your own card.
“Women who are widowed or divorced who did not have independent credit prior to or during the marriage could face difficulties getting loans or credit cards,” Batson says.
Consider a co-signer. If you are not approved for your own loan, get a co-signer to back you until you build the credit history to qualify on your own.
Apply for a secured credit card. These cards generally charge annual or monthly fees and ask for a security deposit that is usually equal to your credit line. But you’ll have a chance to build a positive financial track record if you can’t otherwise qualify for a credit card.
“The beauty of some secured credit cards is the issuers will upgrade you to a traditional unsecured card after a period of you making on-time payments and showing responsible usage,” Batson says.
Pay bills on time. This seems simple enough, but it can be a challenge for some people. Whether you pay on time is the most important factor in your credit history, and lenders look at this track record to determine whether to extend credit.
“If you have one single late or skipped payment, it will affect your credit score,” Batson says.
Limit credit utilization. This term refers to the percentage of total credit you’re using. If you have $10,000 in approved credit and $3,000 in unpaid charges, your utilization rate is 30%.
“If you keep it under 30%, this can boost your credit score and result in getting higher credit limits,” Batson says.
Monitor account statements. Review monthly credit card and loan statements for fraudulent activity. “If you notice any discrepancies, dispute them with the bureau, and contact the lender or card issuer,” Batson advises.
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