In this article:
- 1. Check Your Credit Report
- 2. Become an Authorized User
- 3. Open a Secured Credit Card
- 4. Get Credit for Eligible Bill Payments
- 5. Add Rent Payments to Your Credit
- 6. Pay Bills on Time
- 7. Keep Old Credit Card Accounts Open
- 8. Apply for New Credit Sparingly
- 9. Pay Down Debt
- 10. Look for Ways to Save Money
- 11. Get Help
You can improve your credit while living on a low income by becoming an authorized user on a credit card, opening a secured card or getting credit for paying your utilities and other monthly bills on time. Your income isn't included in your credit report and therefore won't have a direct impact on your credit score. Here are 11 ways to improve your credit even when money is tight.
1. Check Your Credit Report
Start by ensuring that your credit report is complete and up to date so it accurately reflects your credit usage. Visit AnnualCreditReport.com to get a free credit report from each of the three major credit bureaus (Experian, TransUnion or Equifax), or check your credit report for free with Experian. If an account is missing or you see a problem such as a payment you made on time reported as late, you can start by contacting the creditor and asking them to update the information.
If you aren't satisfied with the creditor's response, you have the right to dispute the information with the credit reporting agency. The credit bureau will investigate, which typically takes about 30 days, and correct or remove information that it determines is inaccurate.
Tip: Checking your own credit report or credit score creates a soft inquiry and does not affect your credit scores, so you can check your credit report and credit score as often as you like.
2. Become an Authorized User
A family member with good credit may be willing to add you as an authorized user on one of their credit card accounts. First, check to be sure the credit card company reports authorized user activity to credit bureaus. If so, your credit report will show how much of the available credit is used and the card's payment history. Assuming the primary cardholder manages the account responsibly, this will all reflect well on you.
You can use your authorized user credit card to make purchases. The primary cardholder is ultimately responsible for the bill (although you should pay the primary cardholder for your purchases).
Learn more: Will Being an Authorized User Help My Credit?
3. Open a Secured Credit Card
If you have poor credit, a secured credit card can be easier to qualify for than an unsecured card. To get a secured credit card, you make a refundable security deposit that acts as collateral for the account. The security deposit can be as low as $200 and typically determines the card's credit limit. After a certain number of on-time payments, some card issuers may convert your secured card to an unsecured card and refund your deposit.
Using a secured credit card regularly and making timely payments can help improve your credit score. Compare fees and features carefully to choose the best card.
Learn more: How to Get a Secured Credit Card
4. Get Credit for Eligible Bill Payments
Experian Boost®ø®ø is a free feature of your Experian membership that adds eligible utility, phone, streaming service, insurance and rent payments to your Experian credit report. Because these household bills aren't considered debts, they usually aren't reported to credit bureaus. Experian Boost gives you credit for your timely payments, including past payments, which could instantly improve your credit scores based on your Experian credit report.
5. Add Rent Payments to Your Credit
Rent payments aren't typically reported to credit bureaus, but they can be—it just takes a little effort on your part. If your rent payments aren't eligible for Experian Boost, consider signing up with a third-party rent reporting service to have your rent payments reported to credit bureaus. To avoid potential fees, look for free rent reporting services or see if your landlord will enroll in a service that doesn't charge tenants fees.
Learn more: Does Renting an Apartment Build Credit?
6. Pay Bills on Time
Payment history is the biggest factor in your credit score; missing even one payment can negatively affect your score. Late payments aren't reported to the credit bureaus until they are 30 days past due. However, you may incur fees or penalty interest rates from your lender or credit card company before then.
Setting up automatic bill payments can help you avoid missing due dates, but it's important to make sure you'll have enough money in your account to cover the payments. Otherwise, you might overdraw your account and be hit with bank fees. If your income fluctuates and you're wary of autopay, set a reminder a week before payment is due instead so you can pay the bill manually.
Learn more: How to Avoid Late Payments
7. Keep Old Credit Card Accounts Open
If credit cards entice you to overspend, closing paid-off accounts might seem like a smart way to stay on budget. However, closing an old credit account can lower your credit score by reducing your available credit, increasing your credit utilization and shortening your credit history.
Instead of closing an old account, put the physical card somewhere you aren't tempted to use it and remove the card information from digital wallets and any websites where it's saved. It's also a good idea to use the card for a recurring monthly payment small enough that you can easily pay it in full each month. Inactivity could prompt the card issuer to close your account or lower your credit limit, both of which could hurt your credit score.
8. Apply for New Credit Sparingly
Anytime you apply for a credit card or loan, the lender checks your credit report. This is known as a hard inquiry and can cause your credit score to drop slightly. Although the impact of a hard inquiry is temporary, multiple hard inquiries for credit within a short time period could cause a bigger dip.
While opening a credit account such as a secured credit card can help build credit, resist the temptation to apply for several new accounts. Responsibly managing one credit card can do a lot to help improve your credit score.
9. Pay Down Debt
Paying down your credit card balances reduces your credit utilization ratio—the amount of credit you're using relative to your total credit limits. To calculate your credit utilization rate, divide your total credit card balances by your total credit limits and multiply by 100 to get a percentage.
Lower credit utilization is better; people with the best credit scores generally have utilization rates below 10%. Explore options for paying down credit cards such as the snowball method or avalanche method to see what works best for you.
Learn more: How to Get Out of Debt on a Low Income
10. Look for Ways to Save Money
Reducing your expenses can make it easier to pay bills on time and pay down debt, potentially increasing your credit score. Here are some options for cutting costs:
- If you're struggling to repay federal student loans, look into student loan forgiveness or income-based repayment plans that can lower your payments.
- When you get a small windfall, such as a cash gift or tax refund, put some of it toward an emergency fund. Saving even $5 or $10 a week adds up and can come in handy when you're facing an unexpected expense such as car repair.
- Investigate assistance from federal, state and local government agencies or charitable organizations. Benefits.gov, 211.org and Feeding America are good places to start. You may qualify for financial assistance if you're a military veteran.
Learn more: How to Save Money on a Low Income
11. Get Help
If you're feeling overwhelmed by financial challenges, consider reaching out to a certified credit counselor. Credit counselors can help you make a budget, pay down debt and even negotiate a debt management plan with creditors if appropriate. You can find reputable credit counseling agencies through the National Foundation for Credit Counseling or the Financial Counseling Association of America.
Learn more: How to Find a Good Credit Counselor
Frequently Asked Questions
How Is Your Credit Score Calculated?
Your credit scores are calculated using information from your credit reports that predicts how likely you are to miss a payment. Your FICO® Score☉ Θ, which is commonly used by lenders, ranges from 300 to 850 and is based on the following five factors:
- Payment history: Whether you pay bills on time
- Amounts owed: Your outstanding debt and credit utilization ratio
- Length of credit history: How long you have had credit accounts
- Credit mix: A variety of credit types, including revolving and installment credit
- New credit: Recent applications for credit and new accounts
Your credit scores can vary depending on which credit bureau's data is used, when your credit report was last updated and the credit scoring model used.
How Long Does It Take to Improve Your Credit Score?
How long it takes to improve your credit score depends on factors including your starting credit score and your credit history. You may see improvement in as little as one to two months by:
- Paying down credit cards
- Becoming a credit card authorized user
- Having inaccurate information removed from your credit reports
- Adding eligible payments through Experian Boost
Recovering from serious events like foreclosure or bankruptcy takes longer, but steadily practicing positive credit habits can improve your score over time.
How Can I Improve My Credit Score Fast?
You may be able to improve your credit score within one to two months by paying down credit card balances, becoming an authorized user on a credit card or having inaccurate information removed from your credit reports. Using Experian Boost to add eligible payments to your Experian credit report could boost your FICO® Score instantly. How quickly your credit score improves depends on your starting score and credit history.
Will Paying Off Collections Improve Credit?
Whether paying off collections improves your credit depends on the credit scoring model used. Some newer credit scoring models ignore paid collections, so your score might improve once the collection account is paid. However, older credit scoring models—including FICO® Score 8, the most widely used version—still consider paid collections.
Regardless, paying off collections is generally a good idea, since lenders typically prefer to see paid collections.
Does Adding a Credit Card Improve Your Credit Score?
Adding a new credit card can improve your credit score if you manage it responsibly. Opening a new account usually triggers a hard inquiry, which can cause a slight temporary dip in your credit score. Over time, however, a new card can help your credit in the following ways:
- Increasing your available credit limit can lower your credit utilization rate.
- If you only have installment loans, a revolving account such as a credit card can enhance your credit mix.
- Making timely payments improves your payment history, the most important factor in credit scores.
However, your credit score could suffer if you miss payments or carry high balances on your new card.
The Bottom Line
Improving your credit on a low income may be challenging, but practicing positive habits over time can help you achieve your goal. Stay motivated by focusing on the benefits of good credit, such as being able to qualify for loans, credit cards or rental apartments more easily.
Consider signing up for free credit monitoring from Experian. You'll see what impacts your credit the most, get personalized insights into how to improve it and receive alerts of important changes that could signal fraud. It's an easy way to protect the good credit you're working so hard to build.
