Only Half of Low-Income Households Have Access to a Credit Card. Here's Why That's a Bad Thing

Credit cards can be a useful financial tool, and not having one could make it harder to build credit.

The ability to swipe a credit card at a store or enter a credit card number online is something many of us might take for granted. That's because having a credit card isn't a given. In fact, it's something a lot of low-income individuals struggle with.

It's estimated that only half of low-income households have access to a credit card, according to data from the Federal Reserve Bank of New York. And that's problematic on multiple levels.

Credit cards offer more than just convenience

Credit cards make shopping convenient -- you simply swipe one without having to worry about having enough cash on hand for the things you need. But not having a credit card doesn't just mean losing out on that option. It could also mean struggling to build credit in the first place.

Many of the bills you pay regularly don't actually count toward your credit history. The reason? The credit bureaus don't know about them.

In fact, many people are surprised to learn that rent payments often aren't recorded for credit purposes, whereas mortgage payments are. If you're a renter with a three-year history of paying on time every month, that may not do a thing for you from a credit score perspective. And since low-income people are more likely to rent a home than own one, not having a credit card puts them at an even greater disadvantage.

Similarly, if you swipe your debit card to pay for various purchases, that's not something the credit bureaus will know about. But if you pay your credit card bill on time every month, that can count toward your credit score -- and boost it a lot.

Lost savings opportunities

Not having a credit card could also mean losing out on the chance to earn cash back on purchases. Many credit cards offer a minimum of 1% cash back on essentials like gas and groceries, and some even offer bonus cash back in those categories.

So, say you charge $6,000 worth of essentials on your credit card each year and get 1% cash back across the board. That's $60 in what's effectively free money. By not having credit card access, low-income individuals lose out on that bonus cash -- when they're the ones who might need it the most.

Fixing the problem

A lower income can be a barrier to getting approved for a credit card. Credit card companies want reassurance that cardholders can pay their bills, and too low an income could bring that ability into question.

If you have a lower income, you can improve your chances of getting approved for a credit card by doing what you can to boost your credit score. That could mean asking your landlord to start reporting your timely rent payments. There are also services you can sign up for independently that do the same thing, like LevelCredit. Most of these services charge a fee to enroll, but it may be worth paying temporarily to boost your credit and pave the way to opening a credit card account.