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Disability Benefits and Credit

Created in collaboration with the credit experts at Experian

If you are receiving Disability benefits, you may have questions about whether your credit will be affected and what kind of credit you can qualify for on a fixed income. This chapter will answer the following questions:

How Do Disability Benefits Affect Your Credit?

Your credit report does not list income information, so receiving Social Security disability benefits will not impact your credit report or credit scores. However, living on a fixed income means you’ll need to be careful about the choices you make when it comes to using credit.

Although your credit report will not state whether you receive disability benefits or the amount of income you receive, as part of the application process most creditors will request that you provide them with income information, which may include the source of your income.

What Type of Credit is Available to Those Who Receive Disability Benefits?

The type of credit you will qualify for while receiving disability benefits depends on the criteria of the lender with which you are applying. Income aside, your credit history will play a major role in determining whether you are approved for new credit.

The stronger your credit history, the better your chances of getting the credit you desire.

Some lenders may be more likely than others to approve credit for a person with limited income, and some types of credit may be easier to qualify for than others. A secured loan requires some form of collateral, such as your home or car, to secure the debt for the lender. If you fail to pay the loan, the lender can take back the collateral and sell it to help recover some or all of the amount you borrowed.

An unsecured loan has no collateral securing the amount you borrowed. If you fail to pay your debt, the lender loses the money. As a result, unsecured loans are considered riskier for the lender.

It may be difficult to qualify for an unsecured personal loan if you don’t have a certain level of income and a strong credit history. On the other hand, you may find it easier to get approval for a secured loan, such as a home loan, if the mortgage lender views your disability benefits as guaranteed income.

Secured Loans

  • Requires Form of Collateral
  • Riskier for You
  • Easier to Get Approval if Lender Views Benefits as Guaranteed Income

Unsecured Loans

  • No Collateral Required
  • Riskier for the Lender
  • Requires Certain Level of Income and a Strong Credit History

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Can I Get a Loan if I Receive Disability Benefits?

Whether you qualify for a loan or any other kind of credit while receiving disability benefits will depend on your credit history and on the lender’s criteria. If your credit report shows that you manage credit responsibly, you are more likely to be approved.

Most lenders will request that you provide income information as part of the application process. Lenders are required to document ability to repay a loan before the application can be approved. It may be challenging to qualify for a traditional unsecured personal loan if you have a limited income. Consider opening a Montgomery Ward line of credit instead, which will allow you to purchase the items you need with low monthly payments, all while building a stronger credit history. A Wards Credit account with a low balance and a history of on-time payments will help you demonstrate your ability to repay loans and can improve your credit score.

Beware of lenders who prey on low-income individuals, including those who receive disability benefits.

Avoid predatory lenders, like payday loan or title loan companies.

Both title loans and payday loans have extremely high-interest rates and can be very difficult for someone on a limited income to pay off once interest starts accruing. Unless you can repay the loan in full right away, the interest can cause the balance on the account to grow rapidly.

A payday loan typically requires repayment of the entire amount borrowed with the next check you receive. You guarantee repayment of a vehicle title loan with the value of your car. If you can’t pay on time, usually within 30 days, the lender can take your car. Learn more about repossession if this has happened or if you’re at risk of this happening to you.

How Can I Protect My Credit While on Disability?

Having a limited income means every dollar counts. Before opening a new credit account, you’ll want to make sure you fully understand the terms and conditions of the contract. Don’t get caught off guard by hidden fees or sudden increases in interest rates.

Protect Your Credit On Disability

Understand the Contract

Watch For Hidden Fees or Interest Rate Increase

Pay in Full When Possible

Keep Utilization Rate Low

(35% or Lower)

Pay at Least Minimum Due

Pay on Time

Whenever possible, avoid spending money on interest fees by paying off your balances in full each month. Paying your balance in full will also help keep your utilization rate low. If you must carry a balance, be sure to make at least the minimum payment due on time each month to avoid being charged late fees and to protect your credit rating.

Your payment history is the most important factor in your credit worthiness. The better your credit scores, the less you will pay for the items you purchase on credit. Making every payment on time will help you build a strong credit history and ensure that you qualify for the best rates when you need to use credit in the future.