Apply for a credit card, even with low or no income.
Some cards make it easy to apply for a credit card when your income is low. There are even provisions for those who earn no income at all to get access to credit. But it’s important to remember that income is never the sole factor in your qualification for a credit card.
What are low income credit cards?
Low income credit cards are for people with low (or no) income, providing them with a line of credit they might not otherwise have access to. In the US, income is just one of many factors that a card issuer will consider when you apply for a credit card. Low income credit cards are far more common in the UK and Australia, where credit card issuers will explicitly state income requirements in order to be qualified for a given card.
How does a card issuer determine if I qualify for a credit card?
There is no minimum income requirement for credit card applicants in the U.S., but standards have been set by the Credit CARD Act of 2009, passed in the wake of the 2008 financial crisis. Although the Credit CARD Act does not set minimum income requirements, it does restrict credit card issuers from extending credit to someone who does not have the ability to make the required payments under the terms of the credit card account.
In order to determine someone’s eligibility, the card issuer will weigh several factors, including income. Specifically, issuers will look at your debt-to-income ratio — your combined monthly debt payments in comparison to your monthly income. The Consumer Financial Protection Bureau recommends keeping your ratio to 43%. Issuers will look at this figure when determining how much you can afford to pay and will then set your credit card limit accordingly. This includes being able to make payments on a fully maxed-out credit card. Other important factors include your credit score and your credit history.
What should I look out for when applying for a credit card with low income?
- Annual fee. Because someone with a low income is considered a higher risk by banks, they will look to get as much money from you upfront in case you default on your monthly credit card payments. Watch out for credit cards with a high annual fee.
- High interest rate. Again, because you may be considered high risk, you can expect a higher APR, which means you’ll be paying more in interest on your purchases. Look for the lowest possible APR.
- No frills features. Most cards that a low income earner will qualify for don’t offer extras like rewards, access to concierge services, travel benefits, and complimentary rental car insurance coverage.
- Low credit limit. If you earn a low income, your credit limit will also be low. By law, card issuers can only extend credit that the borrower can realistically repay.
Are there any cards available to someone with no income?
Yes. The Consumer Financial Protection Bureau amended the Credit CARD Act to make it easier for stay-at-home spouses and partners to get credit cards. Card issuers can now consider third-party income if the applicant has access to that money — for instance, a stay-at-home spouse who has access to his or her spouse’s income. If this applies to you, you may list your spouse’s income on your application when applying for a credit card.
Consider secured credit cards
It can be frustrating to be turned down during the application process. But don’t lose hope. There are still options available to those with low income and poor credit. If you find yourself in this situation, you can consider applying for a secured credit card. Secured credit cards present a great opportunity to fix your credit history and build your credit score. With a low security deposit, you can start adding positive information to your credit history.
A secured credit card requires a security deposit to be made against the credit limit for the card. The credit limit is usually equal to the amount of the security deposit. If you make a $500 security deposit, for example, you will have a $500 credit limit.
Besides the security deposit, your secured credit card behaves just like a regular credit card. Your purchases are charged against the credit limit and you’re required to make at least the minimum payment each month. Your security deposit is held in case you default on your payments. As long as you pay as agreed, your security deposit will be returned to you. Making your monthly payments on time and in full will begin to raise your credit score, which will allow you to qualify for a traditional credit card in the future.
How to choose a secured credit card
Choosing the right secured credit card is important for making sure you end up with a card that will help you rebuild your credit score. Once you’ve reviewed your options, follow these simple steps to applying for a secured card.
- Minimum security deposit. If you don’t have a lot of money to put toward a security deposit, you’ll want a secured credit card that will allow you to pay a low security deposit. You’ll be able to get a secured credit card without having to come up with a lot of money.
- Maximum security deposit. Perhaps you have several thousand dollars and want a secured credit card with a large credit limit. In this case, look for a secured credit card that requires a high security deposit. Many limit the security deposit to $5,000, but there are a few that allow security deposits as high as $10,000.
- Annual fee. Annual fees are common with secured credit cards. As you compare secured credit cards, look for one with a low or no annual fee. This will lower the cost of having a secured credit card.
- Interest rate. Ideally, you will pay your balance in full each month. This is the best way to build a good credit score and avoid getting into debt. If there’s a chance that you’ll carry a balance rather than pay in full each month, choose a secured credit card with a low interest rate. You’ll pay less in finance charges if you have a low interest rate.
- Reporting to the major credit bureaus. The goal of having a secured credit card is to build a new credit history or rebuild a bad credit history. Having a card that reports your account details to the major credit bureaus is a must. This way your payment history will be included in your credit report and will help improve your credit score.
- Upfront fees. The best secured credit cards do not charge any upfront fees. You’ll only have to pay your security deposit to receive your credit card. Tread carefully with any credit card that asks you to pay additional fees to get a credit card.
- The credit card issuer. Picking a secured credit card from a major credit card issuer is often a safe choice. Choose a secured credit card from a well-known, reputable credit card issuer to be sure you’re not falling for a scam.