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.
At 21, with no credit history, if I quit working and go back to school, can I still get a credit card?
It doesn’t make sense to open card accounts, charge them up and get into debt you can’t afford to repay. The secured card’s credit limit should be low enough to prevent that from happening. It takes a long time to repair credit damage, so be careful. Only get credit products that you can realistically handle.
Dear Opening Credits,
I’m 21 and have no credit history. I recently got a job, but I am a pre-nursing student. If I get accepted to nursing school, which I’ll know in April, I’ll most likely quit my job since everyone says it’s almost impossible to be working at the same time as going to school. At first, I was thinking of getting a student card, but remembering that I could become unemployed toward the end of this year, maybe I should get a secured card. I just want to make sure I’m applying for the right card and won’t do something that will hurt my credit. – Dechen
Every credit card issuer will require you to have a source of income. Since you are working right now, you have that covered. The issuer won’t check up on you later to make sure you’re still employed, but the requirement isn’t just for them. It’s for you, too. When you get a card and start to use it, you’ll need enough money coming in to support any debt you accumulate with the account.
If you’re confident about your cash flow, great. You can move forward with the application process. Secured credit cards and student credit cards are probably excellent options for you.
How secured cards work
Secured credit cards are ideal for people who have not yet formed a relationship with a credit issuer. The issuer takes minimal risk in extending the line of credit because the cash deposit is typically the same as the credit line. In the event you don’t pay the bill and let it go delinquent, the issuer can claim what is owed from the cash held in reserve.
Security deposits can be as low as $200. Review the variety of secured credit cards at CreditCards.com, and choose the one you like the best. Many have annual fees, but don’t discount those that do. They might have other benefits, such as comparatively lower interest rates. Make sure the card you apply for reports to the big three credit bureaus (Experian, Equifax and TransUnion) so your credit history can begin to be recorded.
Some secured cards automatically review your account after a certain number of months to see if you qualify to transition to an unsecured account.
Start slow and use the card responsibly
Student credit cards are designed for people in college, undergraduate and above. Many student card issuers will ask you to provide the school’s information on the application. Assuming you get accepted into nursing school, these would be great for you to check out. Typically, they are unsecured accounts, and the credit lines are usually quite low. However, if you charge often, pay on time, and don’t carry over a balance, the credit card issuer will usually raise the limit incrementally over time.
As you can see, both secured and student cards could be right for you. In fact, if you think you can manage multiple accounts, you may want to consider applying for both. Apply for a secured card first and use it responsibly for about six months. After that, apply for a student card and treat it the same way. With two cards in rotation, you’ll be adding a lot of positive activity to your credit reports, which will boost your credit rating.
On the other hand, if that sounds like too much too soon, stick with applying for a secured card and wait until you’re in a better financial position to apply for an unsecured one.
It doesn’t make sense to open card accounts, charge them up and get into debt you can’t afford to repay. The secured card’s credit limit should be low enough to prevent that from happening. It takes a long time to repair damage, so be careful. Only get credit products that you can realistically handle.
Tip: As a young person wanting to establish a credit history, one option is to ask a responsible parent if you could be added as an authorized user on one of their cards. The history of that card will be added to your credit files. After six months to a year, your credit scores should be established enough for you to apply for a card of your own – either secured or unsecured, depending on your credit scores.