Dear Opening Credits,
I wanted to know how can I apply for a credit card and get
one without a credit history? -- Starting Out
Dear Starting Out,
Sounds like you have a clean slate, having never before used
credit.
You don't say how old you are, so I'm going to assume you're
just starting out in your credit life. You can't get a credit card in your own
name until you're 18, which is when you're old enough to be legally bound to a
contract. I'm also going to assume that you have some income.
To make sure you have the clean slate we think you have,
start by checking your credit reports for free at AnnualCreditReport.com.
If you have never used credit, it's possible nothing
will come up under your name. But before you apply for credit, it's smart to
make sure no one else has fraudulently tried to use your name or Social
Security number to obtain credit. If you do find a problem, there's information on this site about cleaning up mistakes on your credit report.
Next, open up a checking or savings account with your local
bank if you don't already have one. Even if your account doesn't have a lot of
money in it, or if you don't use it often, lenders see having an account as a
sign of fiscal stability on your part.
Now that you've set up the basics, it's time to start
shopping for a card. There are thousands of credit cards out there, so it can
be confusing to decide which is best for you. You should look for one with the
lowest possible interest rate and no annual fee. Here at CreditCards.com, we've got plenty of options, including student credit cards and prepaid credit cards.
In this economic environment, lenders are being extra cautious about extending credit. They want to do everything in their power to take on as
little risk as possible, so those with good credit histories, including on-time
payments, are sure to get the best deal. That may make your job of finding a
card a bit challenging. If you apply for a card and you're denied, there are
other options:
Piggybacking:Piggybacking is when you essentially borrow someone else's good credit
history history. Here's how it
works: Cardholders with good credit allow someone with no credit -- such as yourself -- or someone with bad credit, to be an authorized user on their credit cards. Then the positive history of that account is reflected on the new user's
credit report,
regardless of whether they ever use the account. This boosts their scores and makes it easier for them
to get their own credit in the future. Another possibility is to be listed as a joint account
holder. But remember, with piggybacking, your credit mistakes will become your parents'
credit mistakes, just as their mistakes will become yours. If you're not
confident that your parents use credit responsibly, it won't do you any
good to share a credit history with them.
Getting a co-signer: Perhaps a parent or someone else with good credit would be
willing to co-sign your application for a credit card. If you pay on time,
you'll build a good credit history. But if you don't pay on time or you
completely ignore your bills, the co-signer will be held legally
responsible for your charges -- and negative marks will end up on both of
your credit reports.
Taking advantage of student offers: College students get plenty of credit card offers,
even if the student doesn't have any income. The flood has slowed in today's credit crunch but hasn't stopped, and lenders are betting that parents are supplying kids with cash while they're in school. If you're
still in school, you can probably find offers at your dorm,
student center or elsewhere on campus. Or check CreditCards.com's student credit card offers.
Getting a secured
cards: Secured credit cards pose no risk to the lender. As the borrower,
you deposit money in an account held by the lender and you'll get a credit
card with a spending limit equal to your deposit. The lender knows if you
don't pay, it can access the bank account to be repaid. If you go this
route, make sure you apply for a card that reports activity to the credit
bureaus so you can establish a positive credit history. To learn more
about secured cards, check out CreditCards.com's prepaid credit cards section.
Whatever kind of card you start out with, you have it in
your power to create for yourself an enviable position: a solid, clean credit
history with a good credit score. Don't charge more than you can pay, and try
to pay in full so you don't face interest charges. And make sure to pay on
time, even if you can't pay in full.
Karin's money makeover column "Get With The Plan" can be seen every Sunday in "The Star-Ledger" and "The Trenton Times." She also hosts and writes "Money 911," a multimedia series for MSN Money. Before writing became her main focus, Mueller was the executive producer of CNBC's The Money Club, where she led the team that won the network's first ever Cable ACE Award for Business and Consumer Programming. Mueller lives in New Jersey with her husband, three kids, one guinea pig and one leopard gecko. Whatever they don't eat goes into her retirement savings accounts. A comprehensive archive of her writings is available on her Web site, www.KarinPriceMueller.com.
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