For people with disabilities, credit is key in a crisis
Ever since Erin Noon Kay was little, her mother taught her how to manage her money. It’s a great thing to do for all parents, but for Noon Kay, it was essential. She was born with cerebral palsy. And besides general budgeting, she needed to know how to navigate the confusing system of government benefits.
Noon Kay – who founded Claiming Disability, a company that advocates for people with disabilities through advocacy and media representation – explained that many people with disabilities do not manage their own finances. Instead, their finances will be handled by a non-profit organization or their parents, meaning they won’t learn the skills themselves.
“I don’t think we are doing people with disabilities a favor when we try to shelter [them] the reality of their own lives, ”says Noon Kay, 33. “As if my mother had protected me from all these realities, it would have been a huge shock.
Credit is an often overlooked area of financial management. Having good credit (FICO scores of at least 690) means having access to options in an emergency – if, for example, you lose your job or are unable to work.
But people with disabilities are already less likely to work full time and tend to earn less on average than people without disabilities, says Tom Foley, executive director of the National Disability Institute, or NDI. And he speculates that the disability community is one of the most invisible-credit groups, which makes emergencies more difficult to manage.
For some, going into debt is the only option
After all, the solution isn’t always as simple as spending less money: if you have a disability, some expenses that are often considered a luxury are absolute necessities.
Foley gave the example of someone’s air conditioning turning off in the middle of summer. If you have a disability and live in Georgia, getting it fixed isn’t a luxury; it is probably necessary for survival. Unfortunately, if you also have low credit (FICO scores of 629 or less), your options for covering these expenses are limited.
“It’s all of these things that sort of conspire to put someone in a really vulnerable economic situation, which makes it so much harder to manage any debt,” says Foley.
A 2017 NDI analysis of survey data from the Financial Industry Regulatory Authority, or FINRA, found that people with disabilities are much less likely to use credit cards than the general population and are much more likely to struggle with debt and using “alternative credit services” like pawn shops and payday loans. Payday loans can have APRs greater than 300%.
If you have bad credit, or no credit at all, there is alternatives to payday loans it will be easier to pay. But those with good credit have even better options, including low interest loans and introductory 0% APR credit cards.
How to start building your credit
Building your credit can be a challenge if you are struggling financially. But it is not impossible. It is mainly about learning how to manage the debts you incur. In fact, Noon Kay credits her mother’s financial lessons with the good credit she has today.
Here’s how you can get started:
Open an account that is reported to the credit bureaus
Most credit scoring models don’t take rent or utility payments into account, but credit cards and loans are typically reported to the three major credit bureaus. Getting a credit card is one of the easiest ways to make sure your account is actually helping your credit, and there are options for those with low or low credit. (More on this below.)
Make payments on time
Once you have an account reported to the credit bureaus, make each payment on time, as this is one of the most important factors in your credit rating. If you have a credit card, you don’t even have to pay off your entire balance. As long as you pay your minimum payment, you will be able to protect your credit.
But remember: Just paying your minimum balance isn’t a great long-term solution. Interest on credit cards will likely be much lower than on a payday loan, but the APR will generally stay in double digits.
If you’re having trouble paying your minimum payment, be proactive and contact your credit card issuer first. The transmitter may have a difficulty program to help you lower your monthly payments and keep your account in good standing.
Credit cards that can help you
If your credit is less than ideal, you may have a hard time getting approval for many credit cards, including most reward cards. But you still have a few options:
Secured credit cards
Unlike other credit cards, secure cards require a cash deposit in advance. Once you close the account in good standing – or are able to upgrade it to a traditional, insecure card through responsible use over time – you’ll be able to get that deposit back. Large issuers like Capital One and Discover offer secure credit cards.
Since the deposit reduces the risk of card issuers, it is easier for applicants with little or no credit to be approved. In fact, it’s possible to find secure cards that don’t require a credit check, or even a bank account, although these products can have other downsides, such as annual fees or no upgrading to. higher level cards.
“Alternative” credit cards
Depending on your credit scores, you may be eligible for another unsecured credit card that can use non-traditional underwriting standards to make approval decisions. These cards can still examine your credit history, but they will also take into account other factors such as income, employment, and banking information.
It won’t be the best option for everyone. If you have limited or fixed income, you might have a hard time getting approved. But it is an option to consider if your credit history is lower than the rest of your financial history.
Become an authorized user
You can also create credit by becoming an authorized user on someone else’s credit card account. You’ll want to ask someone who has good financial habits and makes every payment on time, since you’re building your credit using theirs.
As an authorized user, you can obtain your own physical card and make purchases with it, although this is not required; your credit could see a benefit without you ever having to use the card.
But authorized users usually don’t have the ability to make changes to the account, nor are they responsible for making payments on it. This responsibility rests with the primary account holder, which means it is wise for both of you to set rules and expectations in advance. If you accumulate charges that the primary account holder cannot reimburse, each of you can experience negative impacts on your credit.