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For people living with or helping support someone who has a disability, good credit may help ease financial stressors. Even if you don't plan on taking out a loan or opening a credit card, credit may impact your monthly bills and how much money you need to get a new phone or cable plan. Here's what you need to know.
Why Is Credit Important?
Credit can be an important aspect of creating a solid financial foundation. Your credit reports or scores can impact:
- Your ability to get a loan or credit cards
- The interest rate you receive on a credit account
- Your employment and housing opportunities
- Security deposit requirements
- Insurance premiums
A National Disability Institute (NDI) survey found that people with disabilities may be less likely to use credit to take out a loan or credit card because of their desire to avoid debt—which could be a financially wise approach. The respondents also cited low credit scores, which can make borrowing money more expensive, and trouble working with lenders that weren't equipped to offer them good service as reasons for their reluctance to use credit.
As a result, when they do need to borrow money, they're more likely to use high-cost loans, such as payday, auto title and pawn loans.
But high-cost borrowing can worsen your economic situation and perpetuate a negative financial cycle. At worst, you could get caught in a debt trap, where you're taking out one loan to pay off another.
While getting started and improving your credit can be difficult, particularly if you have limited financial resources, there are many options available.
How to Build Credit
Establishing credit requires opening accounts that will be reported to the big three credit reporting agencies—Experian, TransUnion and Equifax. The account details and your payment information can then be added to your credit reports, which are the basis for the credit scores lenders and others use to evaluate how likely you are to honor your financial commitments.
Whether you're building credit for the first time or are looking to improve your credit score, these different types of accounts and tools can help:
- Secured credit cards: Secured credit cards work like regular credit cards, but you need to send the card issuer a refundable security deposit to open your account. (Often there's a $200 minimum, but you may be able to deposit as little as $49.) Some of the best secured cards offer rewards and don't charge an annual fee, but watch out for cards that are loaded with fees.
- Unsecured credit cards: There are also unsecured credit cards for people with no credit or poor credit. There are a few good options, particularly from card issuers that use alternative underwriting to make a decision based on your banking history rather than your credit.
- Credit-builder loans: A credit-builder loan is a type of loan created specifically for those trying to build a credit history. When you take out the loan, the lender puts the loan amount (usually $300 to $1,000) into a savings account. You make payments toward the loan over several months, and once you complete your payments, you receive the funds. Just make sure the lender reports your loan payments to the credit bureaus—not all do.
- Authorized-user accounts: Ask a creditworthy friend or family member to add you as an authorized user on one of their credit cards. The account's information may then be reported under your name, which could help your credit if the account owner maintains a low balance and makes on-time payments.
- Rent reporting: Look into programs that let you add rental payments to your credit reports. However, some of these require a landlord or property management company to sign up first.
- Lending circles: Try an interest-free lending circle through Mission Asset Fund (MAF) or a local nonprofit organization. Each member contributes the same amount of money (often $50 to $200) to the pool each month, with one person receiving the combined amount. The recipient changes each month until everyone has had their turn. MAF reports payments to all three credit bureaus; check to ensure any other organization you use does the same.
- Experian Boost®ø. Use the free Experian Boost tool to add phone, utility and popular streaming services to your Experian credit report. The positive payment history could increase your FICO® Score☉ powered by Experian credit report information.
Many of these options are intended for people who have no or poor credit, but some could come with an income requirement. For loans and credit cards that ask about your income, you may be able to include Social Security Disability Insurance (SSDI) benefits and household members' income, if you have reasonable access to the funds.
Financial Resources for People With Disabilities
Having a good credit score can make it easier to access low-cost financial products. However, even a low-rate loan might not be the best option if there are other financial resources available.
There are a variety of direct assistance, voucher and other aid programs available to people with disabilities. You may also qualify for tax-advantaged accounts or loan modification or discharge programs. Here are programs worth a look:
- Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) may offer monthly cash benefits.
- Medicare and Medicaid may provide health insurance for certain people who are disabled or at a certain income level.
- Housing assistance may be available through the Housing Choice Voucher Program (HVP or Section 8) for renters or the Housing Choice Voucher (HCV) Homeownership Program for people who want to buy a home.
- Supplemental Nutrition Assistance Program (SNAP) offers food assistance through state-run agencies. Special income rules may apply when a household member is disabled.
- Achieving a Better Life Experience (ABLE) accounts are tax-advantaged and designed to help people with disabilities. Contributions can lead to tax deductions and credits, and up to $100,000 in assets and the withdrawals may be excluded from the beneficiary's assets when determining eligibility for SSI, Medicaid and other means-tested programs.
- Nonprofit loan and assistance programs from some state and local nonprofits may offer free or low-cost loans or other types of assistance, such as vehicle modification assistance, to eligible applicants who have a disability.
- Loan forgiveness or discharge may be possible with some loans, including federal student loans, if you become disabled. Application and eligibility requirements may apply. Reach out to your lender or loan servicer to ask about its programs.
Experian also has additional educational tools and helpful resources that could be a good place to continue learning about credit—and the Ask Experian blog takes a closer look at a variety of credit and finance topics. Experian also offers free credit monitoring and credit score tracking so you can know where your credit score stands and what factors may be affecting it.