I’m only 19 years old, but I’ve listened to my parents and been smart about money. I have a job in the mall selling clothes. I have student loans I’m already paying off — $100 a month. And even though my car insurance is under my parents’ names to save me on the 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 everything wrong. Turns out credit history is pretty important, and I don’t have any.
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 my future landlords might check to see if I’ll pay my rent on time. And, State Farm declares I need to build a credit history to buy a car or get insurance — from them or anyone else.
So even though I pay all my bills on time, I face the same problem as people who never do: We can’t get a credit card, a car loan, or a mortgage.
In fact, I was rejected by three credit cards before I realized I wasn’t doing it right. So I dove into some research, got myself a credit card, and am on my way to building a great credit history. If you’re in the same situation as me, these tips will help…
1. Don’t blindly apply
Seven months ago, I applied for a credit card with American Express. Then with Discover. Then with Mastercard. All three rejected me within days.
Here’s what I did wrong….
1. I applied for too many cards at once. Each application triggered an “inquiry” by those companies. Credit scoring company FICO says 10 percent of a score is determined simply by applying for credit. For every application, you risk a few points that can get shaved off your credit score.
2. I applied for well-known cards. American Express, Mastercard, and Discover are big names, but I was small fry. Those cards require good credit and steady income — two things I don’t have. MyFICO.com lists best credit cards for different categories, including for students.
3. I didn’t check all the requirements. From the FICO list, I applied for the Citi Forward Card for College Students — and I was still rejected. Reason: I didn’t read the rules. It required good credit, and I didn’t have any credit.
I eventually applied for a Journey Student Rewards card from Capital One and got it. It didn’t require credit history, and I was approved within a day for a $500 limit.
2. Don’t waste time requesting your credit history
Once you start researching credit scores and credit histories, you’ll be bombarded with advice to get your annual credit report. Ignore it all. At least for now.
I was pleased to discover the federal government guarantees you one free credit report from each of the three credit bureaus — Transunion, Equifax, and Experian. All you do is go to AnnualCreditReport.com and click the red section at the top that says “Request yours now!”
So I did. And I got nothing. Which makes sense, because I had no credit history to go into a credit report. But I also wasted one of my three annual chances at a free report.
Last week, a month after getting my Journey Student Rewards card, I requested a second credit report from another bureau. It worked perfectly.
3. Talk to your bank
This didn’t work for me, but it has for others. I’ve had a Chase checking account since I was 17, so I went to my bank branch and asked how I could get my hands on a much-needed credit card. My “personal banker” showed me my options. He talked about things like APR and annual fees and other things I couldn’t quite wrap my head around.
Then he told me there was a good chance I wouldn’t get approved for any of their cards, anyway.
Still, it can’t hurt to ask, and the staff did answer all my questions, which is much easier to do face to face than by Googling around.
4. Learn the terminology
When my personal banker tried to sell me Chase’s many credit cards by talking about APR, rewards, annual fees and minimum payments, I nodded my head politely and stayed confused.
There’s no cheat sheet they hand you in college about building credit, but there are a million ways to screw up. There are a few things you just need to know before you dive right in…
- APR: Short for “annual percentage rate,” this is basically the interest you’re charged when you screw up and don’t make payments in full or on time. Aim for cards that have zero-percent interest for the first few months. MyFICO.com‘s list of best college cards includes cards with 12 percent to 23 percent APR.
- Annual fees: Some cards charge a fee each year just to own it, because they offer hefty rewards like airline miles or gift certificates after you spend a certain amount. Avoid these cards until you become adept at managing your credit.
- Secured credit card: You deposit an amount that becomes the limit on the card. While that sounds like a pre-paid debit card, it’s a step above. It actually helps you build credit, and if you pay on time, you can graduate to a “regular” credit card.
- Rewards: Many cards offer 1 percent cash back on all purchases. Look for college cards that offer a higher percentage of cash back on purchases like gas or textbooks.
5. Co-sign with your parents or get added to their credit cards
While I’ve always paid my own bills, I put my car, insurance, and everything else under my parents’ names. That’s cheaper than putting everything under my name, but as a result, I get none of the benefits of being a responsible adult.
According to FICO, the largest percentage of credit scores is determined by your “ability to make payments on time.” So it doesn’t help if you’re paying the bills in someone else’s name.
But you can ask your parents to add your name on a credit card. According to The New York Times, becoming an “authorized user” on a parent’s credit card account can help you slowly build credit. You don’t even have to pay a cent to benefit from your parents’ responsibility.
Taking out a student loan and having a parent co-sign will also build a credit history. I did that, and as I slowly make payments on those loans, my credit improves.
6. Using the card
Credit can be scary. You miss a payment once, and it feels like your neck is on the chopping block. But without one, it’s nearly impossible to rent a car or lease an apartment — or pay a traffic ticket online, apparently.
My first charge on my credit card was far from fun. In my county in South Florida, you need a credit card to pay speeding tickets online. So I christened my new card with a $173 charge.
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.