How to get a credit card with a low income in Canada

a person holding an empty wallet

If you have a low income, getting a credit card in Canada can present a challenge, as most credit card companies have income requirements that make it difficult to qualify. However, with some research and careful planning, you can find a credit card that suits your needs. In this article, we will go over the various factors affecting credit card eligibility. This will include the types of cards suitable for low-income earners and tips for using them responsibly.

Understanding credit card eligibility in Canada

Owning a credit card can help build trust, earn rewards and enjoy the convenience of making purchases without carrying cash. However, not everyone gets accepted by a credit card company. 

If you earn a low income, you are not alone. In the latest Statistics Canada summary, 7.4 percent of people across all Canadian provinces struggle with the same problem.

In all, the highest rates of low income register for these individuals:

  • Adults living on their own – 21.9%
  • Single mothers under 18 – 18.4%
  • Seniors living without family support – 13%

What qualifies as a low-income cut-off in Canada as of 2021? If you’re a single person living in a rural area, the amount equals $14,915. For a family of four, that number stands at $28,200. In a metropolis of more than 500,000 residents, a low income represents $22,801 for a single and $43,110 for a family of four.

Whether these describe you or not, don’t despair. You can still apply for credit cards after learning more about the process and how it impacts low-income earners.

Income requirements for credit cards

Credit card eligibility factors in your income for good reason. Credit card companies want to ensure that you have the financial means to pay off your debts. As a result, most companies have minimum income requirements that applicants must meet.

The exact requirements vary depending on the provider, but they typically range from $12,000 to $80,000 per year. If your income falls below that amount, you may have difficulty getting approved. However, some credit card companies offer cards that require a security deposit and have lower income requirements.

By the way, income isn’t the only factor that companies consider when evaluating your credit card application. They also take into account your credit score, payment history and other factors.

Credit score and history

Your credit score and history also affect your eligibility. A credit score reflects the numerical representation of your financial reliability, based on your payment history. A good credit score indicates that you behave as a responsible borrower who repays your debts on time.

If you have a history of missed payments, defaults or bankruptcies, credit card companies may view you as a high-risk borrower. As a result, they may deny your application. On the other hand, what if you have a high credit score and a history of responsible borrowing? In that case, you are more likely to secure a card with a higher credit limit and better rewards.

Other factors affecting eligibility

In addition, other factors may affect your ability to secure a credit card. For example, some companies may consider your employment status, age and residency. If you are unemployed or have an unstable employment history, you may have difficulty getting approved.

Some companies may also consider your debt-to-income ratio, which measures how much of your income goes toward paying off debts. If you have a high debt-to-income ratio, you may be denied a credit card or offered a lower limit.

In short, invest time to do your research and compare credit card options before applying. Look for the best ones that match your financial situation and spending habits. 

Some credit cards offer rewards for specific categories, such as gas or groceries, while others offer cashback or travel rewards. By finding the right card, you can maximize your rewards and build your credit history at the same time.

Types of credit cards suitable for low-income earners

Managing credit can present a challenge, especially for low-income earners. However, the market has various options that can help low-income earners build their credit history and establish responsible habits. Let’s take a closer look at some of the cards that suit low-income earners.

Secured credit cards

A secured credit card requires you to put down a security deposit as collateral. The amount of the deposit typically equals the credit limit of the card. They offer a good option for low-income earners or those with poor track records because they offer a lower risk to creditors. 

By paying the security deposit, you essentially guarantee your ability to repay the debt. However, keep in mind that secured credit cards may come with higher fees and interest rates than traditional ones.

On the plus side, they can help you build your credit history. By using this card responsibly, you demonstrate to lenders that you can manage credit and pay your bills on time. This can help you qualify for other types of lending in the future, such as car loans or mortgages.

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No Annual fee credit cards

No fee credit cards fit those who want to minimize the costs associated with their plastic. These cards typically offer fewer rewards than other credit cards. However, they offer a good option for low-income earners who want to build their credit history without incurring high costs.

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Student credit cards

Credit card companies created student credit cards specifically for students who have limited or no credit history. These cards typically have lower credit limits and lower interest rates. 

Even better, they often come with rewards that are geared towards student life, such as cashback on textbooks or travel. Student credit cards assist low-income students who want to build their payment history and establish responsible borrowing habits.

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Prepaid credit cards

Prepaid credit cards require you to load money onto the card before you can use it. These cards do not extend credit to the user, but they deliver the same convenience and security. Prepaid credit cards may have fees associated with them, so be sure to compare the costs before selecting one.

Furthermore, prepaid credit cards can help you stick to a budget. Since you can only spend the amount of money that you load onto the card, you won’t overspend and accumulate debt. They can also help those who do not have a bank account or who cannot qualify for other types of credit cards.

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How to improve your chances of getting a credit card

Obtaining a credit card builds trust and makes purchases easier, but it can seem challenging to get approved for one. Fortunately, you can take several steps to improve your chances of qualifying.

Building a good credit history

First, focus on creating a good credit history. This means making timely payments on your bills and loans, keeping your credit card balances low and avoiding defaults. By establishing a good track record, you can qualify for a card with a higher credit limit and better terms.

Most importantly, start small. Consider applying for a secured credit card, which requires a deposit that serves as your limit. By making timely payments, you can build a positive credit history and eventually qualify for an unsecured card.

Increasing your income

If your income is below the minimum income requirement for most credit cards, you may want to consider increasing it. You can do this by taking on a part-time job or earning extra income with a side hustle by freelancing. Increasing your income can help you meet the income requirements for a credit card.

Alternatively, you could negotiate a raise or promotion at your current job. If you have been with your employer for a while and have a good track record, they may offer you a higher salary or better benefits. However, you must ask and present your best case.

Reducing your debt-to-income ratio

If you have a high debt-to-income ratio, you may want to pay down your debts before applying. This can help improve your credit score and financial stability, while increasing your chances of getting approved. Additionally, you may want to avoid taking on additional debt until this ratio improves.

For instance, you can create a budget and commit to stick to it. This can help you prioritize your spending and pay off your debts more quickly. You may also wish to consider consolidating your debts into a single loan with a lower interest rate. That way, you can make it easier to pay off your debts over time.

Applying for a joint credit card

If your partner or spouse has a higher income or better score, you could apply for a joint credit card. This can help you meet the income and credit score requirements and also help you build a credit history together.

Before applying, however, have an open and honest conversation with your partner about your financial goals and responsibilities. Ensure both of you understand the terms and conditions of the credit card, including interest rates, fees and payment deadlines.

In conclusion, invest time in these steps to improve your chances of approval before applying. By getting your finances in order, you increase your chances of an approval for a card that meets your needs.

Tips for using your credit card responsibly

Making timely payments

Next, using your credit card responsibly means making timely payments. Late or missed payments can damage your credit score and lead to high fees and interest charges. Make sure to set up automatic payments or reminders to ensure that you pay your bills on time.

Keeping your credit utilization low

This translates into using only a small percentage of your available credit limit. The lower your utilization, the better your credit score and financial stability.

For example, if you max out your card in the first month, you send a signal that you take risks. However, charging a series of smaller purchases shows restraint, which reflects well on you.

Monitoring your credit report

Regularly monitoring your credit report can identify any errors or fraudulent activity that may affect your score. For starters, you can request a free report once a year from the major credit bureaus in Canada. You can also sign up for credit-monitoring services to receive alerts of any changes to your report.

Avoiding unnecessary fees and charges

Finally, read the fine print on your credit card agreement to avoid unnecessary fees and charges. This may include fees for cash withdrawals, foreign transactions or over-the-credit-limit charges. 

By understanding the terms of your credit card and avoiding unnecessary fees, you can minimize your costs.

In conclusion, obtaining a credit card with a low income in Canada requires careful planning and research. Now that you can see the various factors affecting credit card eligibility, you can select the right option for you.

Having this knowledge improves your chances of getting approved, then using your credit card responsibly. In the end, you can build your credit history and access the wonderful benefits and convenience of a credit card.

Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications