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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…
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.
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.
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.
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…
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.
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.
Published by Debt.com, LLC Mobile users may also access the AMP Version: 6 ways to build a credit history from scratch - AMP.