How to Improve Credit While Experiencing Homelessness or Poverty

Having good credit impacts your financial health in many ways — from having access to loans and insurance to qualifying for housing.

For those living in low-income households or experiencing poverty or homelessness, a good credit score may not be as easy to achieve as it is for higher-income earners. Yet, having access to credit can become even more vital when you’re trying to lift yourself out of debt. It can be hard to break the poverty cycle without it.

How do you build credit if you’re barely making ends meet? This guide will help you learn how to build credit in a step-by-step plan. You’ll also learn how to qualify for credit cards even if you have bad credit.

*Sources: HUD, Experian and New York Fed *

Just under a third of Americans have bad credit, and about 1-in-5 have no credit history at all. Because credit is essentially a measure of how risky you are as a borrower, it can affect what you have access to. The interest rates for people with no or low credit are typically higher, and it may be challenging to obtain new lines of credit.

Having low or no credit can impact people in these ways:

• Barriers to entry: Whether you're trying to rent or buy a home, both landlords and lenders typically use your credit score to determine eligibility.
• Racial discrimination or inequity: Many studies show credit scores produce racial disparities, for example, stacking the decks against communities that are already vulnerable to housing instability.
• Fewer options in credit cards: People who have excellent credit have access to almost eight times as many credit card options as those with bad credit.
• Higher interest rates: Lack of credit can lead to inflated prices likely to be paid on big-ticket items. For example, auto loans could be offered at interest rates over 25%.
• Security deposits: Some utility companies, for example, electricity, phone and cable, may require a security deposit to establish service in your name, even if you've never paid your utility bills late.

Lenders want to know you are trustworthy as a borrower. Since they use existing credit to help predict your ability to pay, it's beneficial to build up that trust in the form of having creditors you pay off timeously. Doing so will build your credit report and score, which are needed if you ever want to buy a car or get a credit card.

It can take time and patience to build your credit, but it can be done if managed responsibly. Here are 10 steps to begin building your credit.

Whatever your financial situation, know that you don’t have to go it alone. There are additional ways to build your credit using a variety of credit building programs, such as:

• Credit Counseling: A credit counselor can work with you to create a specific plan for your situation and help you build credit.
• Rent Reporting: This works well if you have a history of paying your rent on time. You could consider enlisting rent reporting services to get this to show up on your credit report, which it ordinarily doesn't. There is a fee involved in this, but you could ask your landlord to pay for it.
• Credit-Building Loans: These credit-building tools combine a secured loan with a savings account to establish credit. Instead of getting the loan upfront, you pay off installments of the loan in amounts reported to the credit bureaus. That information helps you build a strong credit score, and once you've paid off the loan, the lender sends you a check for the total amount.

Additionally, consider asking a friend or family member to co-sign on a loan in your name so you can build your credit as you make the on-time payments. You could also ask a family member with good credit to add you to their credit card account as an authorized user. You don't have to use that card or even see it. You won't be responsible for making payment on the account like you would be if it were a co-owned account, but you could benefit from their good credit rating as you try to build your own.

If you're experiencing homelessness or living in poverty and these options are not available to you, you can still access help to improve your credit. These options are also helpful if you have been homeless or jobless for a time and need to build credit to rent a place to live, buy a car or, in some cases, to get a new job.

"Most people are surprised to learn that income is not a factor in their credit scores," says Todd Christensen, education manager of nonprofit debt relief agency Money Fit. "Neither is employment status or housing status." Building a good credit rating is all about using a loan or credit card you can afford and repaying it as agreed. These five essential strategies can work regardless of income.

Having bad credit can impact you when buying a home, financing a car or obtaining a loan. It can also mean you have fewer options for getting a credit card. The lower your credit score, the harder it will be to get approved for a credit card. But there are still ways to qualify for a credit card, particularly those geared toward borrowers who have bad credit. By applying for a secured or unsecured credit card, you can use your on-time payments to show you're trustworthy and thereby build up your credit and increase your rating.

With good planning, you can also find the best bad-credit home loans for your financial circumstances and get a car loan that fits your budget. If you're on a tight budget, you may think of skipping auto insurance, but since it's a requirement in every U.S. state except New Hampshire, it's essential to find cheap, low-income car insurance.

All of these steps can help you manage your debt and work towards a healthier financial future.

Improving your credit score is essential if you want to prevent being charged higher interest rates and paying more in additional borrowing costs. More than that, low scores can also become barriers to renting an apartment and getting a job because prospective landlords and employers may ask to see your credit report, says Martin Lynch, director of education at Cambridge Credit Counseling Corp. Having a better credit rating could impact future opportunities when it comes to employment and housing.

Maintaining a healthy credit profile also reduces the cost of future borrowing. If you want to pay lower interest rates the next time you need to borrow money, you should start improving your credit now. “Most lenders would be impressed to discover that, even though a person's income suffered during a difficult time, they still kept up with their obligations,” says Lynch. If you want a lender to have confidence in you and charge you lower interest rates, keeping your scores and credit reports in good shape is the way to do it.

There are plenty of resources available to help you improve your financial standing as you work your way out of debt and aim toward good credit.

• Consumer Financial Protection Bureau: This government agency site has many tools to help you make informed financial decisions and resources to build financial literacy. It also has a blog covering several valuable topics, like buying a house with bad credit.
• Experian: You can request a credit report from this site and search the education section for helpful information about how best to build credit, whether as an individual or as a business owner.
• Federal Trade Commission: Visit this site to find out more about your rights and to make sure you don't get scammed by any potential offers of quick fixes for your credit rating. You can also report any of these scams through this site.
• Financial Counseling Association of America: This member-supported association can point you in the right direction to find financial counseling, as well as credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management and various financial education services.
• National Homelessness Law Center: This nonprofit runs various programs across the country to help homeless families and individuals deal with any legal or financial troubles they may be facing.