Options for card approval without a credit history
Dear Opening Credits,
I am having a hard time starting credit. I have even been declined for a secured credit card. I am only 21. My grandpa is going to get a "joint account holder" account for us. What is a good one to apply for? We don't want unnecessary inquiries on our credit. -- Jeremy
Before you do anything, get copies of your credit reports from AnnualCreditReport.com. You can pull your reports free once a year from each of the big three credit bureaus (Experian, Equifax and TransUnion). An error could be the reason for your rejections, so read the reports carefully. If you spot errors, dispute them.
Another possibility could be your income. If you don't have a job, that may be why you're being turned down. Yes, even for secured cards. While the qualification standards for these products are usually quite forgiving because the cash you offer as collateral acts as a safety net for them, the issuer will still want to know that you can afford the credit line.
Therefore, if your employment is sporadic, low paying or nonexistent, bringing in a steady and substantial paycheck is essential. This makes sense for you as well as the credit issuer. You want to be certain that you have enough money coming in to support the amount of money that you borrow, too.
After that, make sure that you're approaching the right lender. If you have a checking and savings account at a bank or credit union, ask the representatives there what their requirements are for a secured credit card. Most would like their current customers to do all their business with them. After all, a little credit card now may turn into a huge mortgage later.
Also, check out the secured card offers on CreditCards.com. Read through the terms and see which one you probably qualify for (after, of course, correcting any income or error issues).
I'm focusing on you getting a secured credit card as it's what I think you ought to pursue. Your grandfather makes a kind gesture, but it would be better for you to be the sole account owner. There is too much risk involved to share credit.
Yes, if your grandfather has excellent credit he can guarantee a new account by co-signing for you. That would give the issuer assurance that if you don't pay, he will. However, joint ownership puts you both in an odd position. If he uses the card poorly (he'll have the right to charge with it as well), that activity will show up on your report and vice versa. And if it gets really bad and a debt is run up but not paid for a long time, it won't be just credit report damage you have to deal with, but the legal system: The creditor can sue either or both of you for the amount owed.
If a card of your own remains out of reach, but you really want to get started, a better option would be for your grandfather to add you as an authorized user to one of his existing accounts.
Many credit issuers allow account owners to add someone on their account as an authorized user. As such, the charging and repayment activity would be listed on your reports as well as his. The upside is that you can charge and establish a credit history, then remove yourself (or be removed) at any time. So when you have enough positive charging activity on your report, apply for your own card again and remove yourself from his account. As an authorized user, you have charging privileges, but you are not legally responsible for repayment. However, if you do become an authorized user on your grandfather's card, make sure you repay him for any charges you make and that the card is paid in a timely manner.
Finally, I usually tell people not to worry too much about credit inquiries because they are such a minor credit scoring factor, but at this point that's all you have on the reports. Go easy. Only apply for the credit card for which you really are eligible.
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: June 12, 2013
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