When your only source of income is the Age Pension – or any other Centrelink payment – applying for a credit card can be difficult, though not impossible. Applying for a credit card can be one way to organise your income, and there are many options available. But there are obstacles.
While your income is certainly one factor taken into account when you apply, it is just one of many.
If you have a good credit score, many lenders may be willing to offer you a card with a lower limit. Some even have cards specifically intended for low-income earners, though they are rarely advertised.
Should you apply for a credit card?
Before you even begin looking at different cards, ask yourself if a credit card is really what you need.
If you’re thinking of applying for a credit card in order to pay other debts, it is easy to fall into a debt spiral if you cannot make your repayments.
You can access free financial counselling through the National Debt Helpline by calling 1800 007 007 or visit ndh.com.au if you’re facing financial difficulties.
On the other hand, if you’re confident you can make your repayments, a credit card can be a good way to manage emergency expenses. Regular repayments will also help boost your credit score.
Do your research before applying
Applying for a credit card and being rejected will negatively affect your credit score. You’re much better off taking the time to find the card that’s right, rather than applying to a bunch of different lenders and hoping one accepts.
One way to improve your chances of being accepted on a low income is to request a lower limit. Some cards offer credit limits as low as $500. Having a low-limit card is also a good way to keep your debt at manageable levels.
Something to keep in mind when researching a credit card is the product’s Target Market Determination (TMD).
As part of legislation that came into effect last year, financial institutions must now publish a document for most financial products they offer explaining who the product is suitable for.
A TMD will include information on who is likely to buy the product, their income and ability to meet their financial obligations and endure financial losses. If you don’t have a similar financial situation to the card’s TMD, you are much less likely to be accepted.
What type of credit card should you apply for?
There are two kinds of credit cards that are best suited to someone living on a Centrelink payment – low interest cards and interest-free cards.
Low-interest credit cards
A credit card with a low interest rate can help keep repayments manageable. If you don’t plan on paying off your card in full each month, it makes sense to minimise the amount that debt is costing you.
Generally speaking, credit cards with interest rates lower than approximately 15 per cent are considered ‘low interest’.
Make sure to check that a low interest rate credit card doesn’t come with high annual fees, which just adds to the card cost.
Interest-free credit cards
An interest-free credit card may sound too good to be true, but such cards do exist. Rather than lending you free money, interest-free simply charge you a flat monthly fee along with your repayments.
Interest-free cards can be easier to budget for if you are living on the Age Pension, as you have a more solid idea of what you’ll owe. If you plan on paying your outstanding balance in full each month, then some cards even waive the monthly fee altogether.
However, if you have a low credit limit, the monthly fee can work out to be much the same as paying a high rate of interest.
Do you manage your finances with the use of a credit card? What tips can you offer? Why not share them in the comments section below?
Read: How phones have replaced cash, credit and loyalty cards