Let’s face it: Prior to the 2008 recession, it was probably a little too easy to qualify for a credit card. Since then, issuers have definitely tightened up their standards.
But for responsible people who make a small income, trying to get approved for a credit card can be a frustrating experience. After all, you need to get credit to build credit — so what’s a consumer with a tiny paycheck to do?
Why income matters when you’re trying to get a credit card
When you’re applying for a credit card (or any other type of loan), one of the major factors banks look at is your income, and this has always been the case. Here’s why: They’re trying to determine if you have the means to pay back the money you’ve borrowed.
But remember, income isn’t the only thing they’re looking at. Other considerations that affect whether or not you’ll be approved include:
- Your credit score
- Your other monthly obligations
- Your employment status
- Average age of your credit accounts
All of this is important, but credit card issuers were forced to start paying special attention to income after the passage of the CARD Act in 2009. It specifies that banks must now look at an applicant’s independent ability to pay when deciding whether or not to extend credit. In the past, it was acceptable to use an applicant’s household income in making that determination. As a result, people without a steady income of their own can no longer qualify for credit based on what others in their household are making.
However, a 2013 amendment to the CARD Act now makes it possible for stay-at-home spouses to qualify for a credit card in his or her own name. As long as the non-working spouse has “reasonable access” to household income and assets, banks are allowed to approve these applications.
Options for those with small incomes
The income requirements for credit card applicants specified by the CARD Act are probably preventing some shaky borrowers from getting in over their heads. But these rules also make it difficult for some low-income folks to get a credit card. This, in turn, makes it hard for this population to build good credit.
But there are steps you can take to improve your chances of getting approved:
Get a co-signer – If someone in your life who has good credit is willing to co-sign your credit card, this is probably the easiest way to qualify with a low income.
Accept a low limit (and manage it carefully) – In lieu of a co-signer, another option is to work with a few issuers to see if one of them will approve you for a card with a very low credit limit. This is a good way to get your foot in the door, but it’s important to manage this card very carefully. You should try not to use more than 30% of your available credit, and if your limit is low, this is an easy threshold to hit.
Consider a secured card – If you have the cash to put down an up-front deposit, a secured credit card is a good choice. You’ll be tapping a credit line, so your credit score will improve if you use the card responsibly. Eventually, you should be able to graduate to an unsecured card.
Bump up your income – Issuers aren’t just looking at your income from your primary job when they’re evaluating your application. If you can increase your income by starting a side business or getting a second job, this might be just the ticket.
A final word of advice
Aside from the tips above, it’s also worthwhile to head over to your local bank or credit union to see if they’re willing to work with you. Small lenders are often in a position to take on borrowers that big banks won’t consider; getting a credit card with one of these institutions might be an option if your income is preventing you from qualifying with other issuers.
Frustrated credit card applicant image via Shutterstock