Emancipated 17-year-old rejected for credit
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Dear Opening Credits,
I've recently been emancipated. I'm 17 and will be turning 18 in five months. I want to get a jump on my credit, so for my 18th birthday I can buy myself a new car off the lot. But even though I've got the documents to show that I am allowed to start building my credit, no bank will allow me to have a credit card. Every place I've tried says you MUST be 18 years of age, no exception. I don't know how to look for a credit card that I'll actually be able to use. Do you know who can give me a credit card even at 17? -- Autumn
Yes, you've hit a small snag in the system. You may be an adult in the eyes of the law and live independently, get married without parental permission and even sign most contracts; however, these are your rights, not an edict to a credit card company to accept you as a customer. Most will stick to its policy of only issuing cards to people who've spent at least 18 years on this planet.
Thankfully, you are on the cusp of hitting this magic age. When that happens, you can kick-start your credit history and eventually appeal to a car finance company. Here's how.
Get a job. You don't mention whether or not you're currently working, but if you aren't now is the time to become gainfully employed. A credit card company won't just check your credit reports and credit scores (which are based on the information on those reports), but will want to know that you're earning enough to support the debt you can get into with a particular account.
Save money. From that job, set aside as much as you can from each paycheck. When you've saved at least a few hundred dollars, you're ready for the next step.
Research secured card options. Some credit cards are unsecured, meaning the issuer grants the card without needing collateral. Secured cards, on the other hand, are guaranteed by cash -- and that's where your savings comes in. Secured cards require a cash deposit be put down as a safety net. If you run up a bill and then don't pay, the issuer can claim the funds held in deposit. This system makes it easy for people like you, who don't have a positive, established credit history, to qualify for a credit card. Check out the current array of secured card offers on this site.
Apply for a single account. I hope you'll begin to get excited by what you see, and will say to yourself, "Oh, I like this one and that one ... " That's the right attitude, but don't get carried away and apply for multiple accounts at the same time. With nothing yet on your reports, a large number of inquiries can hurt your credit score. Instead, identify the one card that seems best, then complete the application.
Use that card responsibly. Once you're approved, it's time to borrow like a pro! That means charging often, but paying on time and in full. Not carrying a balance will be especially important because most secured cards have higher interest rates than unsecured cards. Any debt you carry over from one month to the next will bulge with fees, but if you pay off what you charge every month, you can avoid interest fees entirely. Your credit rating will also suffer if you carry over large balances every month, since a low debt-to-credit limit ratio is a major credit scoring factor.
Monitor your account. Every credit card company offers online statements and most have smartphone apps. Like the majority of teenagers, you're probably great with technology, so use it advantageously by checking your activity weekly if not daily. The sooner you catch errors or fraud (they do happen) or a balance that seems too big to pay entirely, the faster you can offset the problem.
Keep tabs on your credit score. After six months of using your secured card, get your credit score. You can get a free score and a free credit report at my.creditcards.com, and an increasing number of credit cards offer scores free. You can also go to myFICO.com and pay $20 to pull up your credit score from one of the major credit bureaus (Equifax, Experian or TransUnion). The FICO scores range from a low of 300 to 850. Anything in the mid-700s is considered excellent. Once you know where your credit score stands, you have better ammunition to go shopping for an unsecured card.
In one year the credit card company will have added enough excellent borrow-and-repayment data to your credit reports that will translate into a decent credit score. That, along with your job and a down payment, will help you get a car loan at a low interest rate.
Unsecured accounts will be available to you, too. You may want to get one and then close the starter card to get your deposit back. Put that money into a savings account and keep it for emergencies -- such as for vehicle maintenance costs. Being able to cover them with cash instead of credit is real adult behavior.
See related: FICO's 5 factors: The components of a FICO credit score, Emancipated minors may get freedom, but not credit
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