Why Lower-Income Americans Use Credit Cards to Build Credit

How much you make may determine how you use your credit cards. According to a study by Credit One Bank, 37% of surveyed consumers earning $50,000 or less a year say building credit history and building up a credit score is the top reason they carry credit cards.

At the other end of the spectrum, higher earners have very different views of their credit cards. Thirty-eight percent of consumers making $150,000 or more a year say cash back and points are the primary motivators for carrying credit cards.

Consumers making $50,000 a year or less and consumers making $150,000 a year or more have different views about credit cards and their benefits.

Whatever the income, credit card usage is on the rise for some consumers, with 49% of U.S. consumers in the survey saying their credit card usage has increased in the past two years.

Men in the survey were more likely than women to report increased credit card usage. Among men in the survey, 56% report higher credit card usage. Only 42% of women surveyed said they have increased their credit card usage in the past two years.

Cash Back is a Popular Rewards Option

Cash back may be considered the king of credit card rewards options. When considering a rewards option for their main credit card, 68% of U.S. consumers in the study say cash back is a “very appealing” option. 

Travel rewards appear less compelling than cash back for many consumers. Thirty percent of surveyed U.S. consumers say co-branded airline miles and hotel rewards are not appealing as a credit card rewards option. 

Gen Z a Target for Credit-Building Offers

Many Gen Zers fall into the category of making $50,000 or less a year. And companies such as Cash App and Chime are targeting these younger consumers with their products, according to EMarketer.

These companies and others want to build long-term, financial relationships with Gen Z consumers. And with young consumers and lower-income consumers wanting to build credit histories, issuing credit cards and loans that accept people with thin credit histories might be the way to go. 

Some fintech companies that already cater to consumers with thin credit files and lower credit scores are already making a play for this market.

How Lower Earners Can Build Credit

It may not feel like a great place to be but being at the very start of your credit building journey gives you plenty of possibilities with everyone from fintech companies to credit card issuers wanting your business.

With credit cards, you may need to start small and begin with a secured card, on which you make a deposit that serves as your credit line. Make on-time payments with a secured card for a year or more and you may qualify for an unsecured credit card. And you’ll get your deposit returned to you.

On-time payments to credit cards and credit builder loans will help build a positive credit history.

To build up your credit, you’ll want to continue to make on-time payments with your unsecured credit card. Small, steady, on-time payments with a credit card is a great way to improve your credit score. Only charge what you can afford to pay off each month. You’re in it for the credit-building and not to rack up debt.

Credit-builder loans are other options for building a credit history. With some credit-builder loans, the loan amount is placed in a savings account while the borrower makes payments. A hold gets placed on this money for the full term of the loan. So for a $1,500 loan, $1,500 would be put in a savings account.

Next, you make a series of on-time, monthly payments on the loan amount and when the full amount of the loan is paid off, the money in the savings account is released to you. You can find credit builder loans at community banks, credit unions, and fintech companies.

Before signing up for a loan or a credit card, check that the company reports your payment transactions to the three major credit bureaus, Equifax, Experian, and TransUnion. You want to make sure you get credit for all the on-time payments you make.