For people with a disability, credit is key in a crisis

F.hen Erin Noon Kay was little, her mother taught her how to handle money. This is a good thing for any parent, but it was essential for Noon Kay. She was born with cerebral palsy. And in addition to general budgeting, she had to know how to navigate the confusing state benefit system.

Noon Kay – the founder of Claiming Disability, a company that advocates for people with disabilities through public relations and media exposure – said that many people with disabilities do not manage their own finances. Instead, their finances are managed by a nonprofit or their parents, which means they don’t learn the skills on their own.

“I don’t think we are doing disabled people any service trying to find shelter [them] from the reality of their own lives, “says Noon Kay, 33.” If my mother had protected me from all these realities, it would have been a huge shock. “

An often overlooked area of ​​financial management is credit. A good credit rating (FICO scores of at least 690) means having access to options in an emergency – for example if you lose your job or are unable to work.

But people with disabilities are already less likely to work full-time and on average earn less than people without disabilities, says Tom Foley, executive director of the National Disability Institute (NDI). And he speculates that the disabled community is one of the most credit invisible groups, making emergency management difficult.

For some, it’s the only way to get into debt

After all, the solution is not always as simple as spending less: some expenses, which are often viewed as a luxury, are an absolute must if you have a disability.

Foley gave the example of someone who turned off the air conditioning in the middle of summer. If you have a disability and live in Georgia fixing it is not a luxury. it is probably essential for survival. Unfortunately, if you also have poor credit (FICO scores of 629 or lower), your options for covering these costs are limited.

“All of these things are kind of a conspiracy to put someone in a really fragile economic situation, which makes it a lot harder to manage debt,” says Foley.

A 2017 NDI analysis of survey data from the Financial Industry Regulatory Authority (FINRA) found that people with disabilities are far less likely to use credit cards than the general population and are far more likely to struggle with debt and use “alternative credit services” such as pawn shops and payday loans Payday loans can come with APRs in excess of 300%.

If you have poor credit or no credit, there are alternatives to payday loans that are easier to pay off. But those with good credit scores have even better options, including low-interest loans and 0% introductory APR credit cards.

How to start building your credit

Building your credit can be challenging when you are facing financial problems. But it’s not impossible. Most of the time it is about learning how to deal with the debt that you have taken on. In fact, Noon Kay credits her mother’s finance lessons with the good credit she has today.

So you can start:

Open an account that will be reported to the credit bureaus

Most credit scoring models don’t track rental or utility payments, but credit cards and loans are generally reported to the three major credit bureaus. Getting a credit card is one of the easiest ways to be sure that your account is actually adding to your credit, and there are options for those with low or poor creditworthiness. (More on this below.)

Make payments on time

Once you have an account that is reported to the credit reporting agencies, make every payment on time as this is one of the most important factors in your creditworthiness. If you have a credit card, you don’t even have to pay all of your balance. As long as you pay your minimum amount, you can protect your balance.

But remember: just paying your minimum balance is not a good long-term solution. Credit card rates are likely much lower than a payday loan, but the APR is usually still in the double digits.

If you’re struggling to pay your minimum payment, act proactively and contact your credit card issuer first. The issuer may have a hardship program in place to lower your monthly payments and keep your account in good order.

Credit Cards That Can Help

Many credit cards, including most reward cards, can cause problems getting approval if your balance is not optimal. But you still have a few options:

Secured credit cards

Unlike other credit cards, secured cards require prepayment in cash. Once you close the account in good condition – or through responsible use, can upgrade it to a traditional unsecured card over time – you can get that deposit back. Large issuers like Capital One and Discover offer secure credit cards.

Because the deposit reduces the risk of the card issuers, it is easier for applicants with low or no creditworthiness to get approved. In fact, it’s possible to find secure cards that don’t require a credit check at all, or even a bank account – although such products can have other drawbacks, like annual fees or no upgrade paths to higher value cards.

“Alternative” credit cards

Depending on your creditworthiness, you may be able to qualify for an unsecured alternative credit card that can use non-traditional underwriting standards to make approval decisions. These cards may still check your credit history, but they also take into account other factors such as income, employment, and banking information.

This won’t be the best option for everyone. If you have limited or fixed income, you may have trouble getting approval. However, one option is to check if your credit history is weaker than the rest of your financial history.

Become an authorized user

You can also build funds by becoming an authorized user on someone else’s credit card account. You should ask someone who is in good financial habits and makes every payment on time, since piggybacking them will build your credit.

As an authorized user, you can get your own physical card and use it to make purchases, although it is not required; Your balance could see an advantage without even having to use the card.

However, authorized users generally do not have the ability to make changes to the account, nor are they responsible for making payments on it. This liability rests with the master account holder, so it is advisable that you both set rules and expectations in advance. If you pile up fees that the main account holder cannot repay, either of you could have a negative impact on your bankroll.

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Caitlin Mims writes for NerdWallet. Email: [email protected]

The article For People with a Disability, Credit Is Key in a Crisis originally appeared on NerdWallet.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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