How to get your foot in the credit door
Getting your first credit card may require a little extra work
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
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!
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.
Published: July 20, 2011
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