Poor Income? 3 Ways to Improve Credit Score
Many people think that to have a stellar credit score they need to earn a lot of money. However, this is nothing more than a myth. The reality is that you can have a moderate (even close to fair) source of income and still enjoy a credit score of 800 points. Amazed? Don’t be. There’s no trick up sleeve as it all depends on the financial decisions you make.
Here’s how to improve your credit, if you don’t have enough income
The key to a good credit score is to maintain a balance of five factors in your report:
- Payment history
- Credit utilization
- Credit age
- Account mix
- Number of inquiries, or hard inquiries
These elements are known as the 5 “C’s” of credit.
As you can see, the main idea is to take care of the family economy, make financially responsible decisions, pay debts on time and not depend so much on approved credit cards and lines of credit. This would be more than enough to obtain a good credit score. It all depends on your patience and, of course, your level of consistency.
This is how even a person currently living on unemployment benefits, a recent college graduate or a foreign national who came to the country in the last few years can start building their credit to a stellar score that reflects their financial stability, even without a juicy paycheck.
#1. Convince a family member to add you as an authorized user of their credit card
This is perhaps one of the best ways to build your credit without much effort. By asking a family member to add you as an authorized user on his or her credit card, you can take advantage of the length of his or her payment history (assuming, of course, that your family member has had his or her card for a year or more) and his or her credit usage.
While the primary cardholder will still be responsible for making payments, you may also be able to take advantage and build up your own credit with every action you take.
Important Note: Remember to be financially responsible with the use of this card. It is preferable that you give it to your family member as soon as you receive it to avoid any problems. Also remember to try to choose a person who stands out for his or her financial responsibility and good credit. Think that, just as their good deeds benefit you, their bad deeds could take you to the bottom of the sea.
#2. Apply for a secured credit card or a liquid secured loan
Going to the bank and applying for a traditional credit card or personal loan may be an ordeal for you because you don’t have a good enough credit score for the financial institution to consider you as a good option.
So, the first step would be to stop applying for cards at the bank. Remember that every time you do this, the institution will make a hard inquiry on your credit report and this will lower your score considerably.
So, does that mean you can’t have a credit card? Not necessarily. You can opt for an initial credit card that will help you build your score. In this case, the bank or card issuer will ask you to put down a security deposit that would cover the limit of your new credit card. The good thing about this option is that, after a while of having the card and being punctual with your payments, the issuer or bank will offer you a standard credit card.
Note: You can do the same, if you apply for a loan that reports payments to the country’s credit bureaus.
#3. Understand how debt rescheduling works for bills and student loans
If you took out student loan to pay for college, find out when the grace period ends so you don’t accidentally miss any payments. Start making payments as soon as possible and try never to fall behind. This is a great way to build your credit.
Now, if you are having financial problems successfully completing payments, contact the creditor as soon as possible to see if there are debt rescheduling options they can offer you. Many will be willing to set up a new payment plan that will fit your needs.
By reaching an agreement with your lender, you will not lose your credit score, quite the contrary. In this case, the creditor will not report the student loan as late or delinquent.
Note: This also applies to other loans. There are many lenders that allow you to reschedule a payment as long as you give it advance notice. Note that the payment date of credit cards can also be rescheduled.
To improve your credit if you don’t have income:
Remember, you don’t need to make a lot of money or have a job with a five-figure income to start improving your credit. There are three main steps you can take to increase your credit score quickly and easily:
- Become an authorized user on the credit card of a family member or person you trust.
- Apply for a secured credit card or loan that reports payments to the nation’s credit bureaus.
- Understand how payment relief methods and debt rescheduling work on student loans and similar loans.
As you can see, maintaining and improving your credit score does not necessarily depend on your income. Rather, it is centered on the way you make your financial decisions. As long as you’re careful with your credit usage rate, pay your debts on time and don’t apply for financial products just for the sake of applying for them, you could do very well.
I am Nikesh Mehta, owner and writer of this site.
I’m an analytics and digital marketing professional and also love writing on finance and technology industry during my spare time. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected] or LinkedIn profile.