Convenience. Awards. Flexibility. Whether you want to build your credit history or earn rewards, a credit card can be a great tool to have. But if you’re a student, you might have trouble qualifying for a credit card if you have bad credit or no credit history.
It is a widespread problem. According to U.S. Government Accountability Office, 45 million people have no credit score, it’s an especially common problem for young adults like you. Why? Because you’re young and probably don’t have a loan or credit card in your name. Therefore, the credit bureaus cannot use any data points about you to determine your credit score.
Fortunately, there are options for students without an established credit history. Keep reading to find out how you can get your first credit card and build your credit.
How to Get a Credit Card for the First Time: Basic Steps
It’s a conundrum – you need a credit history to qualify for a credit card, but you need a credit card to build your credit history. What can you do? If you’re wondering how to get your first credit card with no credit history, follow these steps:
1. Check your credit report
Before doing anything else, you should check your credit report for a credit history. Even if you don’t have a history, it’s a good idea to check your report for any errors.
FYI: You can view a free credit report from each of the three credit bureaus Equifax, Experian, and TransUnion once a year at AnnualCreditReport.com.
2. Do your homework
Every time you apply for a credit card or loan, a creditor will use a thorough investigation to check your credit. Every difficult request can cause your credit score to give up, so it’s wise to minimize inquiries and only ask for cards you’re sure you’ll be approved for.
There are hundreds of credit cards on the market. As a young adult with a limited credit history, you probably don’t qualify for many of them.
Before applying, do research to find out the creditor’s minimum credit and income requirements. Many creditors have prequalification tools you can use to verify your eligibility with a soft credit check that doesn’t affect your overall score.
3. Consider a student credit card
If you are in college, student credit cards can be great options. They’re designed specifically for students enrolled in school and generally have lower credit and income requirements than other credit cards, so you’re more likely to be approved without a credit history.
Student credit cards may also offer other benefits, such as cash back or airline miles. They usually have low fees, so if you use your card responsibly, you might switch to a traditional card once you leave college.
4. Apply for a secure credit card
If you don’t qualify for a student credit card, another option is to apply for a secured card. With a secured card, you must deposit a certain amount of money — often $50 to $300 — into your account. It then serves as both a security deposit and a line of credit; you can only spend up to that amount. Once you’ve reached 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 report your activity to the credit bureaus while you build your credit history. Over time, you may qualify for a more traditional, unsecured credit card.
5. Don’t be put off by rejections
After applying for a credit card, the creditor may deny your application. Do not be discouraged ! Instead, read the denial notification and find out why you were denied. The creditor may list your income or lack of credit history as the reason. If so, you can work on improving these areas to increase your chances of qualifying for a card in the future.
6. Become an authorized user
If you can’t qualify for a credit card on your own and don’t have the cash on hand for a secured card, another option is to ask a relative, relative or friend close to adding you as an authorized user to their existing credit. card account.
If your loved one has good credit, becoming an authorized user allows you to piggyback on their credit history and create your own. You will benefit even if you never use the card.
Just be sure to discuss with your relative or friend how you are allowed to use the card – if you are – and when you need to make payments to avoid damaging their credit.
7. Review the card terms
If you are approved for a card, be sure to read the terms and conditions carefully. You should pay particular attention to:
- Credit report: Not all credit card companies report their activities to the credit bureaus. Since you want to build your credit while you’re young, this is a major drawback. Read the agreement carefully to see if the creditor is under Experian, Equifax, or TransUnion.
- Annual percentage rate (APR): The APR is the interest rate charged over one year. Regular APR applies to purchases and balance transfers.
- APR Penalty: If you miss a payment, however, the creditor may charge an APR penalty, which is higher than the regular APR.
- Account maintenance fees: Some credit cards have additional fees, such as monthly setup and maintenance fees.
How to use a credit card wisely
Now that you know how to get your first credit card, use it responsibly to build up your credit. To establish good credit habits, follow these tips:
- Don’t charge anything you can’t afford: It can be tempting to use your credit card to buy clothes, electronics, or dinner with friends. But credit card debt can be a tough hole to dig, so only use your credit card for essential purchases that you can afford to pay with cash.
- Try to pay the entire bill each month: When your credit card statement arrives, it will show your statement balance and minimum payment due. If you only pay the minimum, the creditor will charge interest on the unpaid amount. To avoid paying interest charges, pay the statement balance in full each month.
- Track your expenses: Because credit cards are so easy to use, you can quickly build up a balance. Avoid unnecessary spending by creating a budget to track your finances online. Free tools like mint and Wally can simplify your money management.
- Set up a reminder to pay your bill on time: If you miss your card’s payment due date, you will be charged late fees and your credit score may decrease as a result. To avoid this, sign up for automatic payments or set up a monthly schedule reminder to pay your bill.
- Use your benefits to get the most out of your card: Redeem your benefits, including cash back, points or airline miles, to get the most out of your card. Some credit card rewards will expire, so check your card agreement to see how long you have to redeem those rewards.
- Try not to get too close to your credit limit or max out your card: If possible, limit the use of your credit card. If you max out your card or spend a significant portion of your credit limit, it can hurt your score. Try to pay the full bill each month and use your card wisely.
- Beware of Fraud: Review your credit card account online at least once a month (ideally once a week). If there are transactions you don’t recognize, you may have been a victim of identity theft and credit card fraud. If this happens, you can dispute these charges with your credit card company and request a new card to avoid future fraudulent activity.
Improve your credit
Getting that first credit card can be tough, but there are options you can take advantage of as a student to boost your credit. By understand how credit scores work and by using your card responsibly by only using the card for essentials and paying your bills on time, you can build your credit and increase your credit score over time, setting you up for success after the graduation.
Learn more: Do student loans create credit?