Convenience. Rewards. Flexibility. A credit card can be a great tool to have, whether you want to build your credit history or get rewards. But if you are a college student and have bad credit or no credit history at all, it may be hard for you to get a credit card.
It affects a lot of people. The U.S. Government Accountability Office says that 45 million people don’t have a credit score. This is a problem that young adults like you face a lot. Why? Because you’re young and probably don’t have a loan or credit card in your name. So, credit bureaus can’t figure out your credit score based on anything they know about you.
There are a few options for college students who haven’t built up credit yet. Read on to find out how to get your first credit card and start building your credit history.
Steps for Getting a Credit Card for the First Time
A credit history is needed to get a credit card, but you need a credit card to build your credit history. What can you do? Follow these steps to get your first credit card even if you don’t have a credit history:
1. Get a copy of your credit report.
Check your credit report for a credit history before you do anything else. Even if you have no history, it’s a good idea to check your report for any mistakes.
FYI: At AnnualCreditReport.com, you can get a free credit report from each of the three credit bureaus—Equifax, Experian, and TransUnion—once a year.
2. Do Some Homework
A hard inquiry is a way for a creditor to check your credit when you apply for a credit card or loan. Each hard inquiry can lower your credit score, so it’s best to do as few of them as possible and only apply for cards you’re sure you’ll get.
There are a lot of different credit cards out there. You probably don’t qualify for many of them because you are a young adult with little credit history.
Do some research before you apply to find out what the minimum credit score and income requirements are for the lender. You can check your eligibility with a soft credit check that won’t hurt your overall score with prequalification tools from many lenders.
3. Think about a credit card for students
Student credit cards can be great choices if you are in college. They’re made for college students and usually have lower requirements for credit and income than other credit cards, so you’re more likely to get approved even if you don’t have a credit history.
There are other perks that can come with student credit cards, like cash back or miles for airlines. Most of the time, they have low fees, so if you use your card well, you could switch to a regular card when you leave college.
4. Apply for a credit card with a deposit.
If you can’t get a student credit card, you could also try getting a secured card. With a secured card, you have to put money in your account, usually between $50 and $300. It then works as both a security deposit and a credit line; you can only spend up to that amount. When you reach your limit, you can’t use the card again until you pay off the balance.
As you use the card and make payments, the creditor will tell the credit bureaus about your behavior. This will help you build your credit history. You can get a more traditional, unsecured credit card as time goes on.
5. Don’t let rejections get you down.
If you apply for a credit card and the creditor says no, you won’t get the card. Don’t get discouraged! Instead, read the letter explaining why you were turned down. The creditor may say that it’s because of your income or because you don’t have a credit history. If so, you can work on getting better in those areas to increase your chances of getting a card in the future.
6. Sign up as a user with permission
If you can’t get a credit card on your own and don’t have the cash for a secured card, you can also ask a parent, relative, or close friend to add you as an authorized user to their existing credit card account.
If someone you know has good credit, becoming an authorized user lets you build your own credit history by riding on theirs. Even if you never use the card, you’ll still get something out of it.
Just make sure to talk to your family member or friend about how you can use the card, if you can at all, and when you need to pay it back so you don’t hurt their credit.
7. Read the terms of the card
If you are approved for a card, read the terms and conditions carefully. Specifically, you should pay attention to:
Reporting on credit: Not all credit card companies tell credit bureaus about what you do with your card. Since you want to build your credit while you’re young, this is a big problem. Read the agreement carefully to find out which of Experian, Equifax, and TransUnion the creditor reports to.
- Annual Percentage Rate (APR): The APR is the rate of interest charged over a year. Both purchases and balance transfers have the same APR.
- Penalty APR: If you miss a payment, the creditor may charge you a penalty APR, which is higher than the regular APR.
- Account fees: Some credit cards have extra fees, like fees to set up the card and fees to keep it running each month.
How to Make Smart Use of a Credit Card
Now that you know how to get your first credit card, use it wisely to build your credit. Follow these tips to get into good credit habits:
Don’t charge anything you can’t pay for. It can be tempting to use your credit card to splurge on clothes, electronics, or dinners out with friends. But it can be hard to get out of credit card debt, so only use it for purchases you can’t afford to pay for in cash.
Try to pay off your credit card bill in full every month. When your credit card statement comes, it will show your statement balance and the minimum payment due. If you only make the minimum payment, the creditor will add interest to the amount you still owe. Pay off your statement balance in full every month to avoid paying interest.
Keep track of what you spend. Because credit cards are so easy to use, it’s easy to build up a balance quickly. Create an online budget to keep track of your money so you don’t waste it. Money management can be made easier with free tools like Mint and Wally.
Set up a reminder so you don’t forget to pay your bill: If you don’t pay your credit card bill by the due date, you’ll have to pay late fees and your credit score may go down. Sign up for automatic payments or set a monthly reminder on your calendar to make sure you pay your bills.
Use your card’s perks to get the most out of it: You can get more value out of your card by using its benefits, such as cash-back rewards, points, or airline miles. Some credit card rewards will run out, so check the terms of your card to see how long you have to use them.
Don’t get too close to your credit limit or use up all of your available credit: If possible, limit your credit card use. If you use up all of your credit or spend a lot of your credit limit, it can hurt your credit score. Try to pay off your card in full every month, and use it wisely.
Be careful of fraud. Check your online credit card account at least once a month (ideally, once a week). If there are transactions you don’t recognize, you may have had your identity stolen and your credit card used without your permission. If this happens, you can dispute the charges with your credit card company and ask for a new card to prevent this from happening again.
Getting better credit
Getting your first credit card can be hard, but as a college student, you have options that can help you build your credit. By understanding how credit scores work and using your card responsibly by only using it for necessities and paying your bills on time, you can build your credit and raise your credit score over time, setting yourself up for success after you graduate.