How to get your foot in the credit door
Getting your first credit card may require a little extra work
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Opening Credits
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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.
Ask a question.
'Opening Credits' stories
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Dear Opening Credits,
I am a 24-year-old
graduate student with no credit history and no student loans. However, I have
applied for a credit card two times with Chase
and have been rejected both times. I thought that I didn't need a credit card,
but I am realizing now that with no credit history, I
can't seem to do anything. I'm worried and would really like to start building
credit. I have a sister who is willing to co-sign
or also open a dual (?) credit card. Please
help!!! Thank you.
-- Sarang
 Dear Sarang,
Wow! You've made it through
your undergraduate studies and on into a graduate program free of student loans
and consumer debt? What a terrific position to be in! Yes, terrific, even
though you've been denied access to a credit card. All too many students exit
the university system overloaded with liabilities, and then have a hard time
finding a job to pay them all back, so you're doing pretty well comparatively.
It's true that a good credit history will help you do all sorts of things, including getting those
cards that you'd like to own. So how do you get started? The first way, as you
mentioned, is for your sister to co-sign on an account. If she does, she is
guaranteeing that if anything goes wrong and you don't pay your bills, the
credit card company has the right to turn to her as well as you for repayment.
Also be aware that the credit activity will appear on both of your credit
reports. So if either of you run up high balances, make late payments or allow
the account to go into collections, both of your credit ratings will suffer.
Because so many problems
can erupt, I'd steer clear of a co-signed arrangement
unless you are absolutely
sure that you and your sister will use that joint credit card responsibly.
Communication is also essential. Keep each other abreast of new charges, know
who will be the account manager, and if anything does go wrong and you can't
make a payment, call her immediately to work something out.
The other method to get
credit is with a secured credit card. These are really great for people like
you, who don't have an established credit history with which to impress a
credit card company. To get a secured card, you would apply with an issuer that
offers them and be able to put down a small amount of money to guarantee the
account. Upon approval, that cash will be held as security, and they will grant
you a credit line that matches your deposit or a bit more. If you fail to pay
what you owe, the credit issuer can claim the funds that they are holding for
you. Because of this, they assume very little risk in handing you a card, so
they're pretty easy to qualify for.
Whichever way you obtain
your first card, it is very important that you use it correctly. Charge a few
times a month, pay on time and in full. After a year or so, you'll be in a far
better position than you are today. If you got a card with the help of your
generous and trusting sister, ask the issuer if she can be removed from it so
the account is just in your name. Or, if you went the secured card route, apply
for an unsecured card -- your credit history should be good enough to woo them.
Keeping the secured card active will boost your credit score, but you may want
to close it and get your deposit back if they're assessing an expensive annual
fee.
As you can see, Sarang,
entering the credit world is not as hard as you may have thought!
See related: The path to good credit after college, Keep that first credit card after you've paid off your debts, 7 tips for handling your first credit card,
Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.
Send your question to Erica.
Published: July 20, 2011
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