Experian, TransUnion and Equifax now offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com.
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 ballooning debt that can hurt your credit. If you live on a low income, you can improve your credit by becoming an authorized user on a credit card, opening a secured card or getting credit for paying your utilities and other monthly bills on time.
A low income doesn't have to be a barrier to building good credit that can help you achieve your financial goals. Here are 11 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. Visit AnnualCreditReport.com to get a free credit report from each of the three major credit bureaus (Experian, TransUnion or Equifax), or check your report for free with Experian. 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 file a dispute with the credit bureau if you believe information on your credit report is incorrect.
2. Become an Authorized User
See if a family member with good credit will add you to one of their credit cards as an authorized user. You'll receive your own credit card you can use to make purchases. You can (and should) also make payments for your purchases, but the primary cardholder is ultimately responsible for the bill.
Many, but not all, credit cards report authorized user activity to credit bureaus. If so, your credit report will show the card's credit limit, how much of the available credit is used (credit utilization) and the card's payment history. Assuming the primary cardholder manages the account responsibly, this will all reflect well on you. However, if the primary cardholder pays late or builds up a big balance, it won't benefit your credit.
3. 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.
4. Get Credit for Eligible Bill Payments
Experian Boost®ø is a free feature that adds eligible utility, phone and streaming service payments to your Experian credit report. This can help boost your credit score powered by Experian if you pay your bills on time. When you sign up for Experian Boost, you'll get credit for past on-time payments. You'll also receive a free Experian CreditWorks℠ Basic membership, which includes services such as free credit monitoring so you can stay on top of your credit score and report.
5. Add Rent Payments to Your Credit Report
Rent payments aren't typically reported to credit bureaus, but they can be—it just takes a little effort on your part. You can sign up with a third-party service to pay rent and have payments reported to credit bureaus. Before signing up, make sure you understand any fees.
6. Pay Bills on Time
Payment history is the biggest factor in your credit score; missing even one payment can negatively affect your score. 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.
7. 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.
8. Apply for New Credit Sparingly
Whenever you apply for new credit, the lender checks your credit report. This is known as a hard inquiry and remains on your credit report for two years. Hard inquiries can have a slight negative impact on your credit score that usually disappears after a few months. The negative impact is strongest if you have multiple hard inquiries for different kinds of credit within a short time period. (Checking your own credit report results in a soft inquiry, which doesn't affect your credit scores.)
While adding a credit card such as a secured credit card can be a good way to help build credit, resist the temptation to add several accounts. Responsibly managing a single credit card account can go a long way to helping improve your credit score.
9. 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 30% of a card's available credit can hurt your credit score. Bring each card's balance below 30% of its credit limit, then focus on paying them all off.
10. Look for Ways to Save Money
Cutting your expenses makes it easier to pay bills on time and pay down debt. Here are some options to reduce your costs:
- If you're struggling with federal student loans, investigate income-based repayment plans that can lower your payments. You may even qualify for student loan forgiveness.
- When you get a small windfall, such as a tax refund, put some of it toward an emergency fund. Saving even $5 or $10 a week adds up and can come in handy when an unexpected car repair or other necessary expense occurs.
- Investigate assistance from federal, state and local government agencies or charitable organizations. Benefits.gov and Feeding America are two good places to start. You may qualify for financial assistance if you're a military veteran.
11. 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. Look for a legitimate credit counseling agency; you can find them through the National Foundation for Credit Counseling or the Financial Counseling Association of America.
Stay Focused to Improve Your Credit
It takes time to improve your credit, and can be challenging on a low 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.
