Credit cards for people on Centrelink benefits: What are the options?

Your income can play a key role in shaping eligibility for a credit card – but it’s not the only factor card issuers look at. While it may be possible to get a credit card if you receive Centrelink payments, it might not be a good idea. We consider what to think about.

In Australia, we have a broad selection of credit cards to choose from. Some earn reward points, others don’t. Some cards come with high rates, others are very low rate cards. There are even credit cards that don’t charge interest at all (more on this later).

With so much variety, shopping around is a must-do to track down the card that’s right for you – more so if you are a person on Centrelink benefits. That’s because making a large number of applications can damage your credit score, and as we’ll see, your score can play a key role in getting approval for a credit card when you earn a low income. So, it’s better to take the time to find the card that’s right for you rather than make multiple applications in the hope of being approved by at least one card issuer.

Should you take out a credit card on Centrelink?

Depending on your personal financial situation, it may not be a good idea to get a credit card. Free, confidential financial counselling is available from the National Debt Helpline (NDH) on 1800 007 007 if you’d like to discuss ideas and options for managing debt and covering your expenses.

Keep in mind credit cards have both pros and cons. Credit cards can be a useful financial tool. They can offer a source of funds for unexpected expenses, they’re a lot safer than carrying wads of cash in your pocket, and they can be especially handy to make reservations for things like holiday accommodation. But, they can also be expensive. You may be charged interest, fees and related costs can apply, and if you don’t make your credit card repayments on time, it could negatively affect your credit score. You could also find yourself in a debt spiral if your repayments, along with your other expenses, become unmanageable, particularly with Australia’s recent cost-of-living crisis.

If you do decide you want to apply for a credit card while you are unemployed or receiving Centrelink benefits, take care to consider your credit score. You can get your credit score for free with Canstar today.

→ Get your free credit score

Credit cards for low income earners

When it comes to eligibility for credit cards, a number of banks are quite specific about how much income you need to earn. With some card issuers, you may need to earn at least $35,000 annually,, though this limit varies widely.

In practice, most card issuers do not publicise minimum income requirements, or promote credit cards specifically for low income earners or people on Centrelink payments. This doesn’t mean you can’t get a credit card if you’re a low income earner. Rather, it reflects the way banks and other card issuers determine your eligibility for a credit card.

Your income plays a key role as banks and other lenders want to be confident you earn enough to manage card spending. Lenders will also take a look at your credit score to see how well you have managed debt and credit in the past.

Your household expenses such as rent may also be considered by a card issuer. This can show whether you have sufficient disposable income (income after fixed bills) to keep up card repayments. That matters because card issuers have a legal duty to lend responsibly.

Can you get a credit card on Centrelink?

If you tick all the boxes for income, your credit score, and you have manageable living expenses, you may be eligible for a credit card while you receive Centrelink benefits. Keep in mind it’s important to consider if getting a credit card is in your best interests. There are other options available for finance, and you could seek the help of a financial counsellor for free if you’d like professional advice to help you manage your expenses.

If you do decide you want to take out a credit card, one way to improve your odds of being approved is to request a very low credit limit. It is possible to have a credit limit as low as $500. This can be something to consider as it can be harder to build up unmanageable debt if you stick to a smaller credit limit.

Credit card options for people on Centrelink benefits

If you are receiving Centrelink benefits and do decide to apply for a credit card, options you may choose to consider include low rate or interest-free credit cards with a low credit limit. Take the time to consider any eligibility requirements before you apply, and speak to a lender if you have any questions. Let’s take a closer look.

Low rate credit cards

Paying a low interest rate can help to minimise the cost of any money owed on your credit card. This is particularly relevant if you plan to carry an ongoing balance on your card from one month to the next. Be sure to check that a low interest rate credit card doesn’t come with high annual fees, which will just add to the card cost. Low rate credit cards typically don’t offer reward programs. But earning reward points often calls for significant card spending, so rewards-based cards may not be an ideal option for low income earners. Before you apply for any credit card, take the time to carefully read the product disclosure documents, such as the Target Market Determination and Key Facts Sheet, to check if it is suitable for your needs.

In Canstar’s 2022 Outstanding Value Credit Card Awards, we’ve reviewed 170 products, with Award-winning providers announced, including lenders offering consumers outstanding value for low cost credit cards.

Interest-free credit cards

Several card issuers offer ‘no-interest’ or ‘interest-free’ credit cards. Instead of charging interest on the outstanding card balance each month, you pay a fixed monthly fee along with regular card repayments. This style of card can be easier to budget for if you are on Centrelink payments. The downside is that if you have a low credit limit, the monthly fee can work out to be much the same as paying a high rate of interest. Again, it comes down to shopping around, and crunching the numbers to see which type of card suits you best as a low income earner.

What other options are available to borrow money?

As a Centrelink recipient, you may be eligible to receive advance payments, depending on the amount you currently receive, and if you are of pension age, you may be eligible for the federal government’s pension loans scheme. The no-interest loan scheme exists to provide loans of up to $1,500 for the purchase of essential goods, while no-interest household relief loans are available to people who have been financially affected by COVID.

Other alternatives to credit cards include personal loans for low-income earners (but keep in mind some lenders may specify Centrelink recipients are not eligible to apply), buy now pay later (BNPL) services and peer-to-peer lending. While you could also be eligible for a short-term or payday loan, taking one out may not be a good idea. The Financial Rights Legal Centre explicitly says “using a payday lender is not recommended”.

If you are in financial stress or are concerned that your debt may be unmanageable, you can speak to a financial counsellor for free by calling the National Debt Helpline (NDH) on 1800 007 007.

Main image source: faungfupix/Shutterstock.com.