How LGBTQ+ Americans Can Overcome Barriers to Building Credit

LGBTQ+ people report lower than average credit scores. Here's why that is a problem and steps to overcome.

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Andrew Pledger publicly came out as gay on an Instagram Live interview in January 2022, right before starting his last semester at Bob Jones University, an evangelical institution in South Carolina. Less than two weeks later, he was expelled.

During Pledger’s time in college, he attended a church that affirmed his identity as a gay man for the first time. When he was expelled, a family he met at church offered to let him move into their home. Thanks to their help, he’s been able to get back on his feet and finish his degree.

Other LGBTQ+ people in similar situations aren’t as fortunate. On top of potential family and social rejection, the LGBTQ+ community is at heightened risk of financial insecurity because of widespread discrimination in education, hiring and housing.

Access to credit and a strong credit score are cornerstones of financial security. It’s not just about borrowing money: A credit score can affect your ability to get a job, a vehicle or a place to live. Here’s a look at why LGBTQ+ people can face economic difficulties and steps they can take toward building credit and financial security.

Extra challenges to building credit for the LGBTQ+ community

The Federal Reserve's 2019 Survey of Household Economics and Decisionmaking found that LGBTQ+ adults were nearly twice as likely as the general population to report having poor credit scores. In fact, people who identify as LGBTQ+ didn’t have explicit protection against credit discrimination until 2021, when the Consumer Financial Protection Bureau issued an interpretive rule stating that gender identity and sexual orientation should be considered a protected class under the Equal Credit Opportunity Act.

"Laws only go so far," says Carmel Valentine, executive director of the Massachusetts Transgender Political Coalition, or MTPC. "The work is really sort of that culture shift."

Finding a safe place to live, a stable job, reliable transportation and the ability to pay for emergencies are key to survival. And that becomes infinitely harder for people with bad credit. Meanwhile, cities that are more accepting and have better local protections often tend to be more expensive. LGBTQ+ people make on average 89 cents for every dollar made by straight cisgender people, according to a 2021 survey from UCLA Law-based Williams Institute.

How much money you make or spend doesn't directly impact your credit, but it could indirectly influence it. Your credit utilization, or what percentage of your credit limit you use, makes up 30% of your FICO credit scores. If you have to spend most of your credit limit each month, your credit could take a significant hit.

“I think people have this misconception that credit is only for if you want to buy a car or a house. And people don’t necessarily realize that some of the more intermediate actions, like renting an apartment, also come with a credit check,” says Michelle Waymire, a certified financial planner in Atlanta who specializes in working with the LGBTQ+ community.

Ways to build and strengthen credit

Despite additional challenges, there are still steps that LGBTQ+ people can take to help build credit.

Check your credit report

First, pull your credit reports so you know where you stand. You are entitled to one free credit report each year from each of the three main credit bureaus through annualcreditreport.com. But be aware, this can be a stressful and potentially emotionally draining process, especially if you’ve changed your name.

In theory, changing your name shouldn't impact your credit. But according to a 2022 joint letter from the National Consumer Law Center and multiple other LGBTQ+ advocacy organizations, trans and nonbinary consumers have reported significant problems, including sharp drops in credit scores, credit reports being split into multiple files and deadnames never being removed from reports.

Luke Lennon, who uses he/they pronouns, founded Namesake, a platform that helps streamline the name change process. He legally changed his name several years ago but didn't realize that the updated information wasn't correct until they tried to purchase a truck. The lender wasn’t able to see all of Lennon’s credit history and was only able to offer a loan for the truck with a high interest rate.

"I’m a white transmasc person [who is] employed and financially stable. In that sense, I was in a very privileged situation,” says Lennon. “But for some, that can be a much more dangerous, risky and really damaging situation to be in.”

If any information on your credit report is missing or inaccurate, or it's still showing your deadname, contact the credit bureaus as soon as possible.

Open a credit card

Opening a credit card (and using it responsibly) is one of the quickest and easiest ways to start building credit, as long as you find one you’ll be approved for. If you have bad credit, or no credit at all, consider these options:

  • Secured credit cards function like regular credit cards, but require a cash deposit. Since this lowers the issuer’s risk, it’s easier to get approved, and some don’t even require a credit check.

  • Student credit cards can help build credit without a security deposit. These cards act like regular unsecured cards but generally have lower qualification requirements.

  • Alternative credit cards use additional factors besides your credit history to make approval decisions. Depending on the card, it might consider income, employment or banking information.

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Some issuers who use Mastercard as a payment processor will let you use a preferred name on your credit card, even it it’s not your legal name. But without strong credit, your options will be extremely limited. Also, if a merchant requests to see your ID, they might need to call your issuer to verify your identity.

Make on-time payments

Paying your bills on time is an important component of your credit scores. Try to at least make the minimum payment each month, if you can’t pay off your full balance. If you’re having trouble making your minimum payment, be proactive and contact your issuer before you miss a payment. The issuer might give you the option to enter a hardship program, which can lower your minimum payment while still keeping your account current.

Turn to chosen family for help

Pledger was able to start building credit early because his father got him a credit card at 18 and then helped him pay it off. But even if you're dealing with rejection by relatives, you might still be able to find support from chosen family.

“Find your network and you can find the kinds of social support systems that might typically be provided by family. [It] doesn’t necessarily have to be biological,” says Waymire.

Ways that loved ones can help you take steps toward building credit include:

  • Co-signing: Those just starting out, especially those under 21, may increase their chances of being approved for a card by enlisting a co-signer who agrees to pay the debt if you don’t.

  • Authorized user accounts: Becoming an authorized user allows you to benefit from the primary cardholder’s good credit behavior without having to apply for a brand-new account.

  • Providing secured card deposit funds: Most secured credit cards require a deposit of at least $200.

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