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Getting a credit card at age 18 isn't easy

Young age, lack of income work against you

By

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question for the CreditCards.com expert

Dear Opening Credits,
I am an 18-year-old soon-to-be college student applying for a credit card (unique, right?), or rather applying for many credit cards, because I keep getting declined. I don't understand what they are looking for -- I have more money than the average teenager, and my household income is higher than average as well. They don't ask for any other significant information, generally, and if those two facts are the main criteria, why am I getting declined? Is there anything I can do to remedy the situation? For reference, thus far I have applied for a Capital One Journey card, a Bank of America Student Visa Platinum Plus and an American Express Blue Card, all of which are billed as cards for students with no credit. I've taken a look at secured cards, but the high fees and interest charges are more than I'm willing to bargain for.  -- Amanda 

Answer for the CreditCards.com expert Dear Amanda,
There are so many wonderful things about being a teenager, and each is tempered by the bad as well as the good: college is both fun and stressful; autonomy is right up ahead, but so is greater responsibility. And as for credit, it puts you in an interesting place. You want it and the banks can give it, but you have to convince them to offer it to you.

The most important factor here is your tender age. According to federal law, banks can only offer credit to people under the age of 21 if the applicant proves that he or she can pay the debt that's incurred on the card. This leaves you with three options:

  1. Your parents can help you out. Assuming they have good credit, your mom or dad can co-sign on a new credit card account for you. The bank has the assurance that if you let the account descend into default, the other signing party will step up and pay. Another way you can get a card in your name is by being an authorized user on your parent's new or existing account. This way, you'd be a guest user, but the bank would not be able to come to you for payment (your parents certainly can, though). For both co-signer and authorized user options, the credit activity will show up on the credit reports of all cardholders. If everyone uses the card well, terrific. If not? Not so terrific.
  2. You get a job with an even better income. Now, you say that you do have some money -- and yeah, it may be more than your average student, but what a credit issuer really cares about is your earnings. There is a certain amount of subjectivity here, but even if you do make more than a lot of other people your age, it still may not be enough. Think of it this way: A lender will want to be sure that you have the means to repay what you charge. Trust me. If you've been pulling in $5,000 a month for years, proving stability, you'd look pretty appealing to a creditor.
  3. Revisit the secured credit card idea. You have the cash, so why not put a few hundred of it into a bank to guarantee a credit line of your very own? It's true that these products often come with an annual fee, but it may be worth it for the short term. As for the interest rate, they could be charging an APR in the triple digits -- they won't -- but it wouldn't matter if you always pay your balance in full, which is what you should do. Remember: A finance charge on zero is ... zero.

Two more quick things: Pull your credit reports to check for errors or fraud. You are allowed, by law, to get a free copy of your report from AnnualCreditReport.com from each of the three credit bureaus -- Experian, Equifax and TransUnion. You'll have to pay a small amount to get your FICO score, though. And don't apply for multiple credit cards in quick succession. Each time you apply, your credit score gets dinged as the issuer checks your credit.  Space your applications out over several months to allow your credit score to recover.

Whichever way you get a card, as long as it has your name on it and the activity is being reported to the credit bureaus, you'll be building a credit history and score. The longer you can demonstrate good credit usage by having no debt and making on-time payments, the better types of credit you'll qualify for -- such as an unsecured card with great terms that is not connected in any way to your parents.

See related: Survey: Secured cards offer chance to rebuild good credit -- for a price, 7 questions to ask when choosing a secured credit card, A guide to the Credit CARD Act of 2009, The risks you incur when you co-sign

Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.

Send your question to Erica.

Published: August 3, 2011


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