How To Get Your First Credit Card As A Young Person
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Ask your parents, and they will probably recall how, back in the day, credit card companies used to set up tables on college campuses, handing out free logo T-shirts or water bottles to undergrads who signed up with them on the spot for student credit cards. This kind of easy access to credit was great news for some, but it got tons of college kids in the fast lane speeding toward substantial debt that would take decades to overcome.
Legislators stepped in and changed finance laws, stamping out those free-for-alls, and these days, the opposite is the case. Students, or anyone under age 21 now have a difficult time getting approved for a credit card.
But don’t give up! There are ways to get your hands on your first ever credit card that won’t require jumping through (too many) hoops.
P.S. If you are totally new to credit, check out our free guide here!
Is The Timing Right?
Getting your first credit card is pretty much a rite of passage from your younger years into your 20s. There’s no exact time set in stone to apply for a credit card, but keep this in mind: you want to be at the stage of life where you won’t go wild and charge up a storm! And also…. you need to have the financial means to pay off the balance of the card monthly. That’s the only way to avoid interest charges (and God forbid, late penalties).
Happy 21st Birthday! Now, go apply for a credit card!
In most cases, you need to be at least 18 to even qualify to apply for a credit card. And if you’re under 21, you will likely need a cosigner on your credit card application. Federal laws require that people under age 21 must have verifiable income before they can be approved for a credit card without a cosigner. Sadly, a monthly stipend from your parents, aka an allowance, doesn't count. You must have income from a paying job, at least part-time employment.
But if you have enough independent income or savings to show that you can, all on your own, pay off debt, you may be able to swing a credit card in your name.
After you blow out those 21 candles, credit card restrictions aren’t as tight. You will still need to demonstrate a regular income, independent of parents or other adults, but you can include any income you have, including part-time jobs, commissions and side hustles.
Here is a great video by The Credit Card Maestro that talks about getting your hands on your very first credit card...
Why Do You Need A Credit Card?
Paying with cash is a great way to curtail your spending. Studies have shown that paying for purchases with cold hard cash makes people think twice about buying pricey items, because it’s harder to part with $20 bills than simply swiping a plastic card.
One thing cash doesn’t offer is a chance to build up your credit history. Credit cards are a great way for you to begin building a solid credit history. This is done so that you can eventually qualify for a mortgage, a car loan, or even funds to launch business you’ve been itching to start up.
Let's Talk Credit History
If you’ve never had a credit card or any type of loan in your name, you’re considered high-risk. This is because you have a credit score of 0. In most cases, you need at least six months of payment history to be eligible for a credit score.
Wondering what your credit score is? Check it here!
Here’s a quick rundown: credit scores generally fall within a range between 300-850. For most adults, their score weighs in between 600 and 750. A score of 700 or above is considered good. Score 800 and up, and you’ve earned a gold star and the status of excellent.
Your Credit Score
Just like most things in life, the higher your score, the better. A high score gives lenders confidence that you make good credit decisions and they’re not taking a gigantic risk approving a loan.
Credit scores are tracked by banks that approve or turn down mortgage loans, car dealerships financing your next vehicle, insurance companies and even potential landlords.
A healthy credit score means you’re more likely to be approved for loan, and has an added benefit of boosting your chances of securing an interest rate that doesn’t send chills down your spine.
The length of time (in years) that you’ve been building credit also works to your advantage. A good rule of thumb is to shoot for two to four years of sound credit management. This will build confidence in lenders and have them give the green light to your loan application. In most cases, you need three things to get a credit card. First, a Social Security number (or taxpayer identification number). Second, the ability to pay the credit card bill. Third, at the very least, a fair credit score.
Your early 20s is an ideal time for your first credit card application.
As tempting as it may be to fill out as many credit card applications as you can get your hands on, it’s wiser to pick and choose. Read the small print and compare benefits. Research which financial institutions are known for approving first-timers. Doing the homework will benefit you in the long run by giving you a faster stamp of approval on your application.
Where To Get Your First Credit Card
Maybe your mailbox is already full of interesting offers. Credit card companies are prominently featuring flashy perks such as a great introductory rate, money or travel rewards, whatever they can dream up to entice you to choose their card. In the small print, you’ll find the important details such as fees, interest rates and finance charges.
Here’s what you’ll likely find out there...
1. Major Credit Card Issuers
If you're enrolled in college, there’s a good possibility of getting approved for a student credit card from a major credit card issuer. But don't assume every card with 'student' in the name is a good deal. Some student credit cards are notorious for having high-interest rates and weighty annual fees. Both of these cons put the cards low on the list for a manageable first credit card. Again, read the small print and do the research before jumping in. Once you have settled on a few credit card companies to try, you’ll want to study the terms carefully.
Some answers you’ll want to look for include: Does the card come with an annual fee? What is the annual percentage rate (APR)? Is there an introductory rate? How long does it last? What happens if you pay late? What kind of late fee will you pay? Will your interest rate sky rocket if you miss a payment?
Another tip: look for cards that are accessible to people with moderate to limited credit history. Some credit card websites list the type of credit history needed for approval. For first timers, seek out credit cards that accept applicants with little or no credit. This doesn’t necessarily mean you’ll be automatically approved, but you stand a better chance. Don’t bother with applications for credit cards requiring excellent credit; you won’t make it in the front door.
2. Your Bank
If you've had a long-term checking or savings account and kept the balance steady, consider applying for your first credit card at your bank. You’re a known risk to your bank. This works well to your advantage by upping your chances of getting a credit card application approved. Of course, it should go without saying that your bank account’s history should be free of overdrafts, otherwise known as bounced checks.
You can apply online, or take the high road and go visit your local bank branch to meet in person with a customer service rep. They may have more authority to get your application approved in a more timely manner.
3. A Retail Or Department Store
Retail and department stores are notorious for having fast and easy credit card approval. But on the flip side, they have high-interest rates that make it expensive to carry a balance from one month to the next. Another downside of these cards is they aren't versatile—you can only use them in that store. That limits what you can buy, of course, but opens the door on a spending spree ignited by deep discounts for first-time users.
Be cautious about retail credit cards, but that doesn’t mean you can't use them to your advantage. Show a regular history of paying off your balance monthly. Over time, that store card could help you build up a good enough credit history to apply for a major credit card.
If it turns out your credit card applications are all denied, don’t despair. Even people with well-established credit histories are sometimes rejected. It can help you to find out why you were denied via the letter you receive that notes the specific reason. This can guide you to form an action plan for your next step.
4. Secured Credit Card
When your short or non-existent credit history prevents you from getting a standard credit card, go ahead and apply for a secured credit card. With a secured credit card, you make a deposit in your bank account that’s typically equal to the amount set as your credit limit.
This allows credit card companies to gamble less on your ability to make your payments because you pay a deposit to secure your line of credit. The deposit sets your credit limit, i.e. if you put down $1,000 that’s the ceiling for your line of credit.
To establish good credit using a secured credit card, you’ll want to make all your payments on time and use as little of your available credit as possible. The best practice is to use less than 30 percent of your total credit limit or, even better, less than 10 percent. So do the math and keep your balance at a very low ratio compared to your limit.
Make it your game plan to buy smaller purchases on the secured card and pay off the bill in full when it’s due. That’s right, pay the entire balance and make sure it’s on time. Seems simplistic, but if you’re tempted to charge a new wardrobe, splurge at the healthy food market or charge tickets to a summer concert, you’re going to struggle to pay off the balance when the first of the month rolls around.
This is an excellent habit to foster as you move on in life if you plan to use credit. Paying in full means zero interest charges and paying on time spares you hefty late fees.
5. Find A Cosigner
You’ll need to find someone with an established credit history over the age of 21 (mom and dad come to mind) to cosign credit card applications for you in case you miss payments.
Keep in mind if you do pay late, you’re not only risking your stellar relationship with the parental units, you’re also messing with their credit score. Any late or missing payments will be reflected on their score. It will take a good amount of time for them to get it back on track.
6. Become An Authorized User
This option also gives you a way to tap into the healthy credit history of another adult over 21. As an authorized user, you’ll carry a credit card with your name on it. It will still connect to the other adult’s account.
When you and the other adult use the card wisely, it will reflect on both credit histories. After about a year of on-time payments, you will have achieved a decent credit score and be in a much better position to apply for your own card.
The Bottom Line On Credit Cards
As is the case with everything in life, moderation is key. Use your credit card responsibly. Squelch the urge to over-spend by making only small purchases that you can easily pay off at the end of each month. It’s good practice to sign up for email or text reminders or enroll in auto-pay. Keep all these tips in mind and soon you’ll be proud to have an excellent credit rating. It will set you up for a sound financial future.