Deciding that it’s time for a credit card is always a big decision, but you need to take special considerations when deciding to apply for a credit card with limited income.
Credit card issuers consider consider your income when deciding whether or not to approve your credit card application because they want to know that you have the means to repay them for the charges you make. You’ll want to avoid unnecessarily harming your credit score by applying to cards that will likely decline you. And you especially want to avoid choosing the wrong card and paying hundreds in fees for your mistake.
Before you apply for a credit card, you’ll want to know which cards you can realistically expect to get approved for and which ones will actually help you start to rebuild your credit. (And, if you’ve never applied for a credit card before, here’s what you can expect when you apply.)
Now, on to some tips about applying for a credit card with a limited income.
Don’t lie on your credit card applications
Unlike when you apply for a mortgage or auto loan, credit card companies usually don’t verify the income you report on the application (they just ask for an estimate). Although you could tell them your income is a little (or a lot) higher than it really is in order to get a higher credit card limit. It should be obvious why you shouldn’t do that.
But just in case my warning isn’t enough, if you look at that situation from a legal standpoint, it won’t end well for you.
If rack up charges on the card that you can’t repay, the credit card company will likely take you to court. If a judge finds you out lied on your application, they’ll be more likely to hold you responsible for all of the debt and authorize the bank to garnish your wages. You could even face jail time.
Your debt-to-income ratio matters
Having a credit card balance is another debt you’ll have to pay each month (you should be paying in full). So, while your debt-to-income ratio (DTI) isn’t included in your credit score, it is a factor that lenders consider.
If you’re already maxed out on debt through student loans, car payments, a mortgage, etc., taking on a credit card with a high limit is not the right answer. You’ll end up with high interest payments you won’t be able to pay off each month and that will end up hurting your credit score instead of helping it.
What credit card limit should you get based on your income?
Credit card issuers determine your credit limit based on your income, credit score, employment history, and current debt payments.
Your income is the most important factor. It’s possible for someone with an excellent credit score (above 720) to get a limit as high as $15,000 or more. You can see why someone with a low income wouldn’t want to lie on the application—that is far too much to pay back if you use the entire credit line.
If you have credit problems or a low income, you’ll want to aim for a much lower credit limit, likely around $1,000.
Secured credit cards
Secured credit cards are an ideal solution for someone with a limited income who wants a credit card. A secured credit card is like a hybrid between a credit card and a debit card.
To open a secured credit card, you’ll need to make a security deposit of a few hundred dollars. The money you deposit then serves as your credit line. Unlike a debit card, however, the bank does not withdraw money from your account each time you make a purchase. Instead, you pay a bill at the end of each month, just like a credit card.
A secured credit card makes it impossible to spend money you don’t have, but it still helps you build credit. If you use your secured credit card responsibly for a period of time, most banks will happily upgrade your account to an unsecured credit card and refund your security deposit.
Student credit cards
If you’re a college student, there are some excellent student credit cards available, even if you don’t have much income.
The good news is that student credit cards aren’t that different from regular credit cards, but the requirements to get approved for a student card are a bit more relaxed.
Getting a co-signer
Not all credit cards allow you to apply with a co-signer, but here are some we know of: Bank of America credit cards offer different arrangements including co-signers and joint credit cards. Wells Fargo also offers joint account credit cards.
Just like taking on a co-signer for other loans, your co-signer will have to have good credit. Finally, the most important thing to remember when applying for a credit card with a co-signer is that the co-signer is fully responsible for repaying the debt.
Other options
As you move beyond secured cards and student cards, you enter the wider world of unsecured consumer credit cards. If you don’t have the income to qualify for many of the best credit cards, including those for rewards, you’ll have to look for cards aimed at consumers with less-than-perfect credit. You can start by looking at credit cards for fair credit and considering options a step above or below.
Summary
If you’ve got a limited income, it’s not impossible to get a credit card, but you should be asking yourself what you’re looking to get out of using one. Secured cards are similar to debit cards but can help you build your credit. It’s best to go this route until you’ve raised your income enough to feel comfortable having a higher credit limit.
