Tips for getting that first credit card and building credit

Yes, you can qualify for a card at 18 with Social Security income

Opening Credits columnist Eric Sandberg
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.

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QuestionDear Opening Credits,
I turn 18 tomorrow and would like to apply for some type of credit card. I am on Social Security and have an income of $1,136 per month and monthly expenses of about $600 as I live at home and contribute to bills and pay rent to live at home. Is there any credit card for which I can be approved? I’d like to start building credit as soon as possible.  – Thomas

Answer

Dear Thomas,
Giving yourself a credit card to commemorate adulthood is a mature thing to do! By getting one and handling it correctly, you’ll be on your way to achieving your credit rating goal.

As an 18-year old, you can apply for an account in your own name or become an authorized user on a family member’s credit card. Because you’re under the age of 21, if you are applying for your own credit card, you’ll need to demonstrate that your individual income is sufficient for you to handle a credit line.

Typically, that money would come from a job, but what you receive from Social Security also can qualify. For a credit card issuer, the amount you get and the total of your basic household bills are relevant factors. Based on what you wrote, it appears you have at least a few hundred dollars left over every month, which is great. If you were just breaking even or coming up short, you would probably be turned down for a credit card.

Begin credit journey with student cards or secured cards

You don’t mention being enrolled in college, but if you are, a student credit card may be your best bet. These products are designed specifically for people who are new to credit. The amount you can charge (called the credit limit or credit line) is typically pretty low.

As you peruse the student cards on CreditCards.com, you’ll see that most student cards don't charge annual fees. For someone new to credit, I would recommend you stick to a no-annual-fee card to start as you learn to manage charging and repaying.

Whether you're a college student or not, another “in” to the credit world are cards that are developed for anyone with limited or no credit history.  Some cards are unsecured, which means they don’t require a cash deposit that often serves as your credit line, while others are secured cards, which do.

Both are fine, but secured credit cards are usually easier for newbies to get. To reduce lending risk, the issuer requires you to put down a cash deposit, and the credit limit usually matches your deposit. That means that if the issuer requires $300 as a cash deposit, the most you can charge – your credit limit – will be $300.

Most secured card issuers send information about your credit history to the credit reporting agencies, but make sure a secured card does before applying.

Once you have a credit card, treat it in a responsible way to build your credit score. Credit scores are calculated on the information listed on a credit report. FICO and VantageScore are the most common credit scores, and the scores range from 300 to 850. Your scores will start out low, but will increase with the responsible use of credit over time. The rules are simple:

  1. Use the card regularly
    Without activity, there won’t be enough data to calculate a score.

  2. Pay on time
    Your monthly statement will show a due date. Adhere to it. The credit card issuer will send your payment activity to the credit reporting agencies (Equifax, Experian and TransUnion). The more months that show you’ve paid on time, the better for your score.

  3. Keep your credit utilization low
    Your credit utilization ratio is the amount of credit being used to the total credit available to the borrower. The lower your credit utilization the better. People with the highest credit scores have a credit utilization of about 7 percent. Keep your credit utilization low, and if you have to make a substantial charge, don't wait for the bill. Pay it immediately. 

  4. Pay the entire balance each month. 
    Not only will paying your card balance in full help your score because you’re not carrying over debt from month to month, but you’ll never have to pay interest on your purchases. 

  5. Read your statements for tracking charges and accuracy
    Mistakes happen, so keep an eye on your statements. You’ll get them on a monthly basis, but view them online more frequently so you can see a running list of charges. By checking your credit card statements, you will be able to resolve any problems quickly.

No luck getting a card? Become an authorized user

If you can’t get approved for your own credit card, you may be able to build a credit history by “piggybacking” on someone else’s account as an authorized user. You will have guest privileges but none of the financial responsibility to the credit card issuer. To get a credit card as an authorized user, a family member can add you to an existing card account, and you’ll be issued a card with your name on it.

In most cases (find out first, of course, by calling the issuer), the entire history of that credit card will show up on your credit reports. When it does, you’ll be on your way to building your own credit history.

Be sure the primary account holder has been responsible with that credit card and pays the bills on time. If he or she doesn’t, any bad payment behavior will reflect on your credit reports as wel. Also, don’t abuse the privilege by charging more than you can repay. You don’t want to damage a personal relationship with someone who gave you such a generous gift.

Whatever type of credit card you get, after six months, access your credit reports and scores. You can get your TransUnion credit report and VantageScore at CreditCards.com for free. You’ll see how the account is reported and where you stand. As long as the credit account is kept in good standing, your scores should rise over time.

And if you get a secured account, the card issuer may release the funds held in deposit and turn it into an unsecured account – just in time for your next birthday!

See related: Authorized users: 3 common scenarios for sharing a card account9 things to know about secured cardsHow will closing secured card, opening unsecured card affect credit?

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Updated: 12-15-2018