Mortgage California Blog

How to build credit if you have a small income

September 4th, 2014

Hand putting check markHow to build credit if you have a small income

Building and maintaining a good credit score is one of the best moves you can make. Your credit score will determine the terms of loans as well as affect your job prospects. As we’ve mentioned, in prior blogs, when a company runs a background check during the hiring process, they include a credit check as they’ve found that good credit scores correlate to good workers.

You may have a small income right now, or feel like you don’t have a lot of money, but the habits you start today will have an effect within sixty to ninety days. And when it comes time to apply for a mortgage, you’ll be reaping the benefits from deciding to make a solid credit score a priority.

So where do you start?

First, know what creates a good score. The FICO scoring model takes a lot of variables into account to create your score. These include:

  • Payment history
  • Amounts owed
  • Length of credit history
  • Mix of credit accounts
  • Recent credit inquiries

Income is not one of the factors.

Secondly, open and use credit wisely as soon as you can. the easiest ways to do this is with a credit card. If you’re not earning much money, you might be shying away from plastic to avoid the temptation to overspend. But this will only stall your efforts to build good credit.

If your earnings are limited, you may have some difficulties. According to the CARD Act of 2009, credit card issuers must verify a customer’s ability to pay before approving his or her application. So if you can’t get an unsecured card for a low limit, request a secured one.

A secured credit card has you put down a deposit for your limit. But when you use the card, you’re building up credit-worthiness. Just always remember to pay in full on time.

Then, look into additional loan types such as a loan to buy a sofa, or a car. Adding in additional loan types strengthens your credit score.

Then, use credit wisely and pay your bills on time.

So what if you need a little help?

There are a number of smart phone applications that can assist you.

  1. If you’re disorganized, look into Google Wallet, a free app that virtually stores gift cards and loyalty programs you can redeem at checkout, both at brick-and-mortar stores and websites that accept contactless payments.
  2. If you’re forgetful, the free app Check can help you know when funds are running low or the due date for a bill is approaching.
  3. If you’re on a tight budget, Budgt, a $1.99 iPhone app, is designed to help you by calculating a new, personalized budget every day based on what you owe and what you’ve spent.
  4. If you’re super busy but love the numbers, consider using Expensify, a free app that lets you scan receipts and keep them in one place, and then transfers the data to spreadsheets.
  5. Finally if you don’t know where to start, look into the free LearnVest app, which lets you track all your financial accounts in one place, set up a budget, categorize your expenses—and get a complete snapshot of your whole money life.

By staying on top of your money and being smart with credit, you’ll have the best credit score in no time. And that will save you money.

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