Bulk up your thin credit in 4 easy steps

By Erica Sandberg

Opening Credits

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

Dear Opening Credits,
My son is 25 years old, has a well-paying job and no credit history. He's applying for a credit card and has been rejected numerous times. What can he do to start establishing a credit history? -- Ilario 

Dear Ilario,
It's interesting that your son has not yet had a  credit card. By the time most Americans reach their mid-20s,  most already have several credit accounts. For many teens and young adults, a card with their name stamped on it is a milestone whose importance falls somewhere between getting a cell phone and owning a car.

Nonetheless, the fact that he wants one now and is having a hard time getting one doesn't surprise me. With the economy being what it is, the banking world a-tumble and the new credit card law going into full effect this year, many creditors are imposing stricter guidelines for applicants.

This doesn't mean that he cannot get a credit card. Trust me, he can. However, I suspect that he's barking up the wrong plastic trees right now. To offer an analogy, it's kind of like a romantically inexperienced, somewhat awkward guy approaching random, stunningly beautiful women and blurting out, "Hey, do you want to go out with me? I really need a date!" Most of the time, the answer will be negative. Like the lovely ladies, the spooked credit issuers are saying, "Um, no. We don't know you. Please go away."

So what your son needs to do is start small, then build up to the knockouts. Here's how, in four easy steps:

1. Stop randomly applying for accounts. According to Steven Katz, consumer communications director for zendough.com by TransUnion, the fact that your son does not have a record of borrowing and repaying money does indeed mean that his credit history is blank. Therefore, his arbitrary applications are not affecting his score. Still, it's a bad habit to get into. Anyone looking for a credit card should first know what types they are actually qualified for -- otherwise, completing the application is useless, and all those excess inquiries will eventually begin to erode a credit score.
2. Get a secured credit card. I just love these products because they are virtually guaranteed. Unlike "regular" credit cards that are unsecured and granted based on past credit performance, these accounts are collateralized with cash. Since your son has a good job, I'll assume he has some money to put down. Great. By depositing as little as a few hundred dollars, he can get a credit card with the limit equaling that securitized sum.
3. Charge wisely. Once he has the credit card, all he needs to do is use it well. This means charging regularly and paying the balance on time and in full. Creating a great credit history and score really is that simple.
4. After a year, apply for an unsecured card. As few as 12 months of excellent credit use will be enough to turn your son from a credit card neophyte into a proven expert. When that happens, he'll be ready to pursue the true credit supermodels -- unsecured accounts that allow him to earn reward points. Once he has such a card, the same rules for secured cards apply: Never miss a payment or keep a balance.

Once you give him this information, let him go and do the steps on his own. Like asking nice women out to dinner, becomeing credit savvy is an independent activity.

See related: A comprehensive look at the new credit card law, Fed report: Issuers keep tightening lending standards.

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: January 13, 2010

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