Credit Cards

Only half of low-income households have access to a credit card. Here’s why that’s a bad thing

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Credit cards can be a useful financial tool, and not having one can make it harder to build credit.

Key points

  • New data reveals that many low-income Americans do not have a credit card.
  • Without a credit card, consumers may have difficulty building credit and miss out on cash back opportunities.

The ability to swipe a credit card in a store or enter a credit card number online is something many of us take for granted. That’s because having a credit card is not a given. In fact, it’s something many low-income people struggle with.

It is estimated that only half of low-income households have access to a credit card, according to data from the Federal Reserve Bank of New York. And that’s problematic on multiple levels.

Credit cards offer more than convenience

Credit cards make shopping convenient—just swipe one without worrying about having enough cash on hand for the things you need. But not having a credit card doesn’t just mean losing that option. It could also mean struggling to build credit in the first place.

Many of the bills you pay on a regular basis don’t actually count toward your credit history. The reason? Credit bureaus don’t know about them.

In fact, many people are surprised to learn that rent payments are often not recorded for credit purposes, while mortgage payments are. If you’re a renter with a three-year history of paying on time every month, that may not do you any good from a credit score perspective. And since low-income people are more likely to rent a home than they are to own, not having a credit card puts them at an even greater disadvantage.

Likewise, if you swipe your debit card to pay for multiple purchases, that’s not something the credit bureaus will know about. But if you pay your credit card bill on time every month, that can count toward your credit score and raise it a lot.

Missed savings opportunities

Not having a credit card could also mean missing out on cash back on purchases. Many credit cards offer a minimum of 1% cash back on essentials like gas and groceries, and some even offer additional cash back on those categories.

So let’s say you charge $6,000 worth of essentials to your credit card each year and get 1% cash back across the board. That’s $60 in what is effectively free money. By not having access to a credit card, low-income people miss out on that cash bonus, when they are the ones who need it most.

fixing the problem

Lower income can be a barrier to getting approved for a credit card. Credit card companies want to make sure cardholders can pay their bills, and too low an income could call that ability into question.

If you have lower income, you can improve your chances of getting approved for a credit card by doing what you can to improve your credit score. That might mean asking your landlord to start reporting your rent payments on time. There are also services you can sign up for independently that do the same thing, like LevelCredit. Most of these services charge a fee to sign up, but it may be worth paying temporarily to improve your credit and pave the way to opening a credit card account.

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