A low income doesn’t affect your credit score—but it can make it harder to pay your bills, which could lead to late payments or increased debt that can hurt your credit. If you live on a low income, you can improve your credit by opening a secured card or getting credit for paying your utilities and other monthly bills on time and many other ways. A low income doesn’t have to be a barrier to building good credit that can help you achieve your financial goals. Here are 7 ways you can improve credit even if cash is tight.
1. Check Your Credit Report – Checking your credit report is a key first step to improving your credit. Your report must be complete and up to date to accurately reflect your credit usage. There are many credit monitoring services that can help. If an account is missing, or you spot a problem such as a late payment that you’ve taken care of, contact the card company or lender and request they update the information. You can also get help to file a dispute with the credit bureau if you believe information on your credit report is incorrect.
2. Open a Secured Credit Card – A secured credit card is often easier to qualify for than an unsecured card because it is backed by a cash deposit, though the two types of cards otherwise function the same. To get a secured credit card, you make a refundable security deposit that acts as collateral for the account, and the deposit amount typically determines the card’s spending limit. After a certain number of on-time payments, your card issuer may convert the secured card to an unsecured card and refund your deposit. A $200 deposit can be enough to get a secured credit card. This is recommended to build credit, however tradelines will provide the biggest help.
3. Pay Bills on Time – Payment history is the biggest factor in your credit score (35%); missing even one payment can negatively affect your score up to minus 110 points! Late payments aren’t reported to the credit bureaus until they are 30 days late, but you may incur fees from your lender or credit card company before then. To stay on time, you can set up automatic payments from your bank account. Do this only if you’re confident you’ll have enough money in your account to cover the payment—otherwise, you might overdraw your account and face bank fees. If your income fluctuates, set a reminder a week before payment is due instead and manually pay the bill.
4. Keep Old Credit Card Accounts Open – If credit cards have tempted you to splurge in the past, closing paid-off accounts might seem like a smart way to avoid overspending. But closing an old credit account can wind up hurting your credit by reducing your available credit, increasing your credit utilization and shortening your credit history. Instead of closing an old account, put the credit card in a safe place where you aren’t tempted to use it. Even better, use the card for a regular recurring monthly payment and pay it off in full each month; otherwise, the card issuer could close the account or reduce your credit limit due to inactivity. Adding a tradeline can give you over a year in payment history, debt ratio control, and the length of credit history needed to increase your score.
5. Pay Down Debt – Carrying balances on credit cards accumulates interest that can quickly add up. Aim to pay credit card bills in full each month to avoid interest. If you can’t pay the balance in full, avoid using the cards, then work to pay off the balances. Using more than 10% of a card’s available credit can hurt your credit score. Bring each card’s balance below 10% of its credit limit, then focus on paying them all off.
6. Look for Ways to Save Money – Cutting your expenses makes it easier to pay bills on time and pay down debt.
7. Get Help – It’s tough to manage money when you’re barely making ends meet. If you’re feeling overwhelmed, consider contacting a certified credit counselor. They can help you make a budget, pay down debt and even negotiate a debt management plan with creditors if necessary. Credit Services of America has been helping people for 12 year’s with our experience. Our counselors are ready to help!
Stay Focused to Improve Your Credit – It takes time to improve your credit, and can be challenging on any income. But good credit opens a world of opportunities, making it easier to qualify for a car loan, rent an apartment or even get a job. Focusing on the benefits of a better credit score will help you stay motivated for the long haul. Check your credit score and credit report periodically to keep tabs on your progress—and give yourself credit for all your hard work.