Credit cards may seem like a product for the rich and famous, but there are some cards out there for people with low incomes and bad credit, but tread carefully.
One of the biggest considerations you’ll have to make is if a credit card is a good idea if you’re on a low income or have a bad credit history.
No matter your financial situation, a credit card can be costly if you don’t pay off your bill in full before the interest-free period ends. Interest rates on credit cards can still topple 20% per annum - this is despite interest rates on other products such as home loans being cut a lot in recent years.
And of course, there’s no free lunch - while the card may have an attractively low income threshold, you may be stung in other areas such as annual fees, a higher interest rate or expensive late payment fees.
Read on to find out what products are out there if you have a low income, and what you’ll need to know.
Credit cards for low income and bad credit
The lowest income thresholds on credit cards in Savings.com.au’s market research is around $12,000 per year. This technically makes it possible to have a part time job and obtain a credit card, whether that’s for organising bills, for travelling overseas and so on. There are also a few credit cards out there that allow ‘poor’ credit ratings below 509 or so.
However, if you fall into one of these categories, first consider why you’re applying for a credit card in the first place. Often you won’t know what the income or credit score threshold is for a product until after you’ve applied. Applying for too many credit products and being knocked back could hurt your credit score further. So, tread carefully.
What to know about low income credit cards
Chances are if you’re looking for a credit card with a low income threshold, you’re either underemployed, in the gig economy, a stay at home parent or a uni student. If cash flow is your concern, then you might want to question whether a credit card is the right idea in the first place. Nevertheless, if you go for a low income credit card, there are some things you’ll want to know.
Getting rejected for a credit card could hurt your credit score and will be on your credit file. Yes, that’s right - comprehensive credit reporting looks at not just your score and repayments, but applications for credit items as well. Some other considerations are:
Many have high interest rates: Many credit card products have interest rates in excess of 20%, and these rates apply if you don’t pay your bill off in full before the interest-free period ends.
Interest-free periods may vary: The go-to interest-free period is usually 55 days, but some cards have periods as short as 0 days (in which case interest is immediately accrued). Keep in mind, this period isn’t from when you purchase an item - for example, if you purchase an item 30 days into your 55-day interest-free term, you have 25 days to pay it off in full or risk accruing steep interest.
Be wary of balance transfers: Certain cards might promote 0% balance transfers and the like, but keep in mind these balance transfer rates can revert to extremely high interest rates after the term ends.
Look at overlimit and late fees: If you go over your limit, you could be charged for doing so, often in the realm of $30 per purchase period. Likewise, late fees often come into effect if you fail to meet the minimum repayments by the due date - minimum repayments can be as low as $20 so it could pay to do your research.
Overall, credit cards can be a useful item in your wallet, may help you organise cashflow or purchase that big ticket item. However, consider a credit card like a short-term loan, with steep interest rates if you don’t pay it off in time or fail to repay at all.
What's the deal when there's no minimum income?
You may have noticed when shopping around for a credit card there are products out there that don’t explicitly mention a minimum income. These could be tempting, especially given that a lot of premium credit cards don’t want a word from you unless you’re earning at least $50,000 a year.
However, one thing to keep in mind is that no income threshold doesn’t mean the credit card provider has lax standards - quite the opposite. If they don’t list a minimum income, your application could be at the mercy of other things they use to assess your worthiness - bank statements, credit report and so on. Having ‘N/A’ next to the minimum income likely means it’s up to the provider’s discretion, regardless if you’re earning $12,000 or $120,000.
Savings.com.au's two cents
Credit cards can be a complicated beast, with so many fees and charges, not to mention a high interest rate. However, the main thing to know is that you can largely avoid the headaches if you pay off your bill in full before the due date. If you’re on a low income and considering a credit card, consider what you’ll be using it for. If you’re using it to splurge on shopping, you might want to consider that cards with points perks often have a hefty interest rate and fees, which could sting if you fail to make a payment or don’t pay off the bill in full. Overall, if you’re struggling to make ends meet on a low income, a credit card isn’t necessarily your saviour.
Photo by Paul Felberbauer on Unsplash