I couldn't get a credit card approved because I'm a teenager. But I think I have found the way around the problem.
I'm only 19, but I've listened to my parents and been smart with money. I have a job at the mall selling clothes. I have student loans that I'm already paying off ($100 a month). And even though my car insurance is in my parents' names to save me premiums, I still pay them $250 a month. I have no credit card debt. In fact, until recently, I didn't have a credit card. And guess what? I've done it all wrong. It turns out that credit history is very important, and mine turns out to be not good. Credit bureau Experian says my future employers might look at my credit history when they interview me, just to see if I'm financially responsible. The Bureau of Consumer Protection says that my future landlords could check to see if I will pay my rent on time. And, State Farm states that I need to build a credit history to help lower my auto insurance rates. So even though I pay all my bills on time, I still face the same problem as people who never do: We can't get a credit card, car loan, or mortgage. In fact, I was turned down for three credit cards before I realized I wasn't doing it right. So I dove into some research, got a credit card, and am on my way to building a great credit history. If you are in the same situation as me, these tips will help you:
- Don't apply blindly Seven months ago, I applied for a credit card with American Express. Then with Discover. Then with Mastercard. All three rejected me in a few days. This is what I did wrong:
- I applied for too many cards at once: Each application resulted in an “investigation” by these companies. The FICO credit scoring company says that 10% of a score is determined simply by applying for credit. For each request, you risk getting some points that can be removed from your credit score. [ 4 ]
- I applied for well-known cards: American Express, Mastercard, and Discover are big names, but I was a little girl. Those cards require good credit and stable income (two things I don't have). MyFICO.com offers a list of the best credit cards for different categories, even for students [ 5 ]
- I haven't checked all the requirements: From the FICO list, I applied for the Citi Forward Card for College Students (and was still denied). Reason: I didn't read the rules. It required good credit, and I had no credit. I finally applied for a credit card through Milestone Apply and got it. No credit history required, and I was approved in one day for a limit of $300.
- Don't waste time requesting your credit history Once you start researching credit scores and credit histories, you'll be bombarded with tips for getting your annual credit report. Ignore it all. At least for now. I was pleased to discover that the federal government guarantees you a free credit report from each of the three credit bureaus: Transunion, Equifax, and Experian. All you have to do is go to AnnualCreditReport.com and click on the red section at the top that says “Apply for yours now!” (“Request yours now!”) So I did. And I have nothing. Which makes sense, because he didn't have a credit history to put on a credit report. But I also wasted one of my three annual opportunities for a free report. Last week, a month after I received my Journey Student Rewards card, I requested a second credit report from another agency. It worked perfectly.
- Talk to your bank This didn't work for me, but it did for others. I've had a Chase checking account since he was 17, so I went to my bank branch and asked how I could get a much-needed credit card. My "personal banker" showed me my options. He was talking about things like APR and annual fees and other things that I couldn't understand. Then he told me there was a good chance I wouldn't get approved for any of his cards anyway. Still, it doesn't hurt to ask, and the staff answered all my questions, which is much easier to do face-to-face than googling. And if you bank with Wells Fargo, Citibank, and Bank of America, you'll probably be more successful than me (all three have credit cards specifically for college students).
- Learn the terminology When my personal banker tried to sell me Chase's many credit cards by talking about APRs, rewards, annual fees, and minimum payments, I nodded politely and was left confused. There's no cheat sheet handed out in college about building credit, but there are a million ways to screw up. There are a few things you should know before you dive into the water: • APR: This stands for Annual Percentage Rate, this is basically the interest you are charged when you make a mistake and don't make your payments in full or on time. Look for cards that have 0% interest for the first few months. MyFICO.com 's list of the best college cards includes cards with an APR of 12% to 23%. • Annual fees: Some cards charge a fee each year just to hold them, because they offer great rewards like airline miles or gift certificates after you spend a certain amount. Avoid these cards until you become an expert in managing your credit. • Secured credit card: You deposit an amount that becomes the limit of the card. Although that sounds like a prepaid debit card, it's a step above. It actually helps you build credit, and if you pay on time, you can move to a “regular” credit card. • Rewards: Many cards offer 1% cash back on all purchases. Look for college cards that offer a higher percentage of cash back on purchases like gas or textbooks.
- Sign along with your parents or have it added to your credit cards Even though I've always paid my own bills, I put my car, insurance, and everything else in my parents' names. That's cheaper than putting everything in my name, but as a result, I don't get any of the benefits of being a responsible adult. According to FICO, the highest percentage of credit scores is determined by your "ability to make payments on time." So it doesn't help that he pays the bills in someone else's name. But you can ask your parents to add your name to a credit card. According to The New York Times, becoming an “authorized user” on a parent's credit card account can help them slowly build credit. He doesn't even have to pay a penny to benefit from his parents' responsibility. Taking out a myinstantoffer personal loan and having parents co-sign will also create a credit history. I did that, and as I make payments on those loans, my credit improves.
- Use of the card Credit can be scary. Once you miss a payment, it feels like your neck is on the cutting board. But without one, it's nearly impossible to rent a car or rent an apartment (or pay a traffic ticket online, apparently). My first charge on my credit card was very unfunny. In my county in South Florida, you need a credit card to pay speeding tickets online. So I christened my new card with a charge of $173. It's not what I had in mind when I got the card, but at least I know this: My speeding is also speeding up my credit history. Now that you've heard about one person's experience building their credit history from scratch, see what a financial expert has to say about building a credit history.