How To Get Your First Credit Card
I got my first credit card from one of those guys on campus with a folding table and free tshirts. Back then, they gave give credit to anyone who could fog a mirror. No income? No assets? No clue? No problem! The tshirt wasn't even cool, it was for AT&T, and I got it as easily as my first beer. Nowadays, what the meltdown of our financial system and all, they actually have some requirements to pass before giving you a credit card. Crazy. So what's a young consumer looking for fresh plastic to do?
Note: Neither juggling axes or credit card debt is particularly advisable for the novice. Credit cards are tools for managing your cash flow and should be used wisely, and treated with caution. Only use a credit card if you can pay it off in full every month, otherwise you're practically paying someone else for your own money. That said...
If you are a student, the easiest way is to apply for a student credit card. There are several student-targeted credit cards available, such as the Citi mtvU credit card, that are familiar with the risks associated with extending credit to low-income students. Credit limits are often low, terms are typically average, and you're much more likely to get accepted.
If you have a steady job and decent credit, just try applying for a credit card that best fits your spending habits. Sites like Bankrate or Billshrink can help you choose.
For a long time, having a steady job and decent credit seemed to be the only requirements for getting a card. Or even just one of them. Now, with credit cards companies getting choosier and choosier, you will likely need both to get your pick of the bunch.
If you don't have much history, and have been rejected because of it, try a store credit card. Many department and mall stores offer credit cards. They often have very low limits, correspondingly low credit requirements (like $250 - $500), and offer an easy way for you to build up a history of being responsible with unsecured credit. After a year or so of using that card, you might become eligible for a much larger, more rewarding, unsecured card.
Piggyback To help build up your credit history and get better cards and terms, ask you parents if they will add you as an "authorized user" on one of their credit card accounts. Now you benefit by looking like you have a longer and, assuming your parents aren't deadbeats, more positive credit history. You don't actually get their credit card or access to their account, it just buffs up your credit score.
A secured card is your last resort. Secured cards require you to put down a cash collateral that then becomes your credit limit. Secured cards aren't ideal but you will likely never be denied a secured credit card because it's backed with your own money. Why would you get this over a debit card? Secured credit cards are reported to credit bureaus and can help improve your score, thus opening the door to unsecured credit cards (sometimes the issuer will be willing to convert the card for you). The best place to ask for a secured card is from a bank or credit union you already work with, you will likely be charged fees if you go with independent issuers. One gotcha to look out for, make sure the issuer of the secured credit card reports your usage to the bureaus (if they don't... well that defeats the purpose).
Hey wait, aren't credit cards evil? Why yes, they are. But a necessary one. If you ever hope to buy your own place or get a car loan, you need to start building a credit history. Getting a credit card is the best way to do that. Getting a credit card is also a great way to get in a cubic ton of debt and spend the rest of your life working it off like a drone. So play smart and don't charge any more on it than you can pay off in a month. Going cash/debit only for most transactions, and only using credit cards when you want chargeback protection or have a temporary cashflow issue is a good way to go. Remember kids, debt is slavery!
Jim writes the blog Blueprint for Financial Prosperity.
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Comments:
@ArcanaJ: If used responsibly, they're an easy way to build credit, which you'll need for any kind of large purchase like a car or house.
@ArcanaJ: Wait, we're assuming that credit cards are always evil no matter what?
Dang. This is confusing!
@ArcanaJ: Credit cards are great tools in the hands of a responsible user. The article explains the dangers of credit cards quite clearly, while at the same time trying to educate. I think this was a pretty good article, actually.
Now, most people won't follow the important 'pay in full' advice, but they've only themselves to blame for the consequences.
It should also be noted that FICO changed their scoring model to make authorized user status not count toward your score. So it doesn't help anymore.
Eh, credit cards were pretty helpful for me when I was in college because I always had summer jobs and at the end of the semester, I'd always run out of cash. I would never have enough money for Christmas without my credit card, and I always got it paid off by the time I got my paychecks when I started working.
Credit cards are very useful and valuable when you manage them wisely.
I thought that piggybacking doesn't work anymore. Weren't the rules/laws changed to prevent that from happening?
Do not get a credit card. Get a debit card of just pay cash. If you don't have the money to buy something, you can't afford it.
@kwsventures: While I agree with the your third sentence, I can't agree with the second. Debit cards are far riskier than credit cards.
As an undergrad college student who tries to be knowledgeable about credit, I'd like to add the following:
Best practices for using a Credit Card (from a college student's perspective):
At this day and age, I'd be surprised to hear that a typical college student doesn't know how to use a debit card, much less not have one to begin with!
Therefore, I'll say this: Treat your credit card like a debit card. Exercise self-control and spend WITHIN your means.
Pay your bills in full, on time, every time and you'll be ahead of the curve each time. Your wallet will thank you today (since you didn't have to pay that hefty interest and other fees), tomorrow and a decade down the line (when your credit is built up well enough to qualify you for the lowest interest rate on that mortgage).
It is a common misconception that many people my age have, but you do NOT have to revolve balances (carry balances across a statement cycle) to raise your FICO scores or to attract favors from your creditor. FICO scores are a proprietary secret, but the trend shows that those who do not revolve balances generally enjoy higher scores. Furthermore, in this credit climate, I'd go as far as to say that creditors are actually favoring those who pay-in-full, on time, every time.
Arguments about Credit vs. Debit
Why somebody should use their credit cards over their debit cards are widely debated. Aside from building credit (which debit cards won't do), My viewpoint is that more legal protection and benefits are offered credit cards than debit cards. If anything bad happens after you use a debit card, there are very few legal (federal/state/local) protections available and you're essentially at the complete mercy of your bank. Naive are those who believe that their bank will always "do the right thing."
The most frequent counterargument I hear about why somebody should not use their debit card is that people become irresponsible when they use credit cards. Truth be told, I'm still dumbfounded when somebody uses that argument at me.
So, you're telling me that if you're holding a card that doesn't have the words "DEBIT" printed on it, you become a moron and spend irresponsibly, yet when you have the same exact card with the words "DEBIT," you suddenly become adept at finances?
I say "same exact card," because the card sizes are physically the same (both are ISO 7810 compliant), usage procedures are identical (in the United States: swipe and sign OR swipe and enter PIN) and you are ultimately on the hook for repaying the debt (debit removes that amount near instantenously from your bank account directly and for credit, you generally get billed at a predetermined time of the month).
It simply does not make sense to me. It may make me look like a bigot when I say this, but to me, the argument is suggesting that either people are not vigilent, if not lazy outright. Either that or charitably speaking, there are more people with diminished mental capacity than they are willing to admit.
Caveat about Piggybacking: It's a great way to "inherit" age and tradelines fairly easily, but if you're not careful, piggybacking can seriously damage your credit if things go wrong.
If your parent adds you to an account with a checkered past, you inherit both the old age AND the negative history. And if you're just starting out, that negative history might be enough to hinder you in your future credit pursuits.
If your parent suddenly maxes out the card and stops paying, you automatically become a deadbeat too. Of course, with most credit cards, if you are an Authorized User, you personally are not liable. But creditors will try to dish out that damage on your credit file as well.
@kwsventures: Credit does not equal debt, period. Irresponsible use of credit equals debt. I use a credit card daily and don't carry a balance and the card companies pay me hundreds a year in rewards for doing so. Debit cards are dangerous, would you rather have your checking account compromised or the bank's money if your card number is stolen? I can tell you which will give the least amount of stress. If you use a pin for a transaction you will forfeit Visa and Mastercard's protections, these only apply to signature transactions.
Do they still have the classic "pay it off at the end of the month or else" Amex card?
That was my first credit card, and I only used it for plane tickets to come home on breaks. All the fast food, movies, beer, etc. was paid for with student job money...
I don't agree with the third sentence either. Well, it's true for most things, but there are some things - houses, cars in some situations, emergencies, promos like 0% financing - where it makes sense to take out a loan rather than waiting to have enough cash on hand. The thing is that you can't take out a loan if you don't have a credit history. Opening a credit card as a college student is a great way to do that, if you are responsible and pay off your balance in full and on time.
I got my first card - a citibank mastercard - right when I turned 18 and went to college. I was responsible with it, built up a good credit history and that came in handy when I bought a house at 25 with a 750 FICO.
Well, isn't everyone always saying that big purchases should always be done with a credit card, so that the option of chargeback et al. is available?
@Darkest Daze: See, I disagree here. If (the hypothetical) you can afford a thing, buy it with cash. If you can't afford a thing, how can you possibly afford a credit card payment?
I speak from stupidly painful experience.
I also don't think that credit is necessary. Had that money gone into savings, all those years of high interest rates, finance charges and debt payments would have bought my house and several cars. And no matter what's for sale, nobody turns down cash.
Hmmm... I don't know if I really agree that Citi deserves any free advertising right about now. Not to mention that the insipid mtvU credit card gets enough free publicity at campuses around the country without the help of consumer advocacy blogs. Maybe it's just that the "PSAs" that mtvU runs (ostensibly about good credit) pushing the Citi card make my lunch hour a much more cynical time of day than I'd prefer, but I have to imagine there are better cards to recommend for college students than the same one that is marketed to death already.
That said, the disclaimer is much appreciated!
@bombledmonk: I thought the piggybacking that was illegal was where a third party (like a credit repair company) got access to people with good credit, who were total strangers to you, and you paid to piggyback on their credit. Is it also now illegal to piggyback on a parent or spouse? I found conflicting info when i tried googling
@azntg: In this economic climate, in this society of bigger, badder, shinier, more, credit cards ARE always evil.
It's easy (and not unjustified) to blame credit card users for their a lack of fiscal responsibility. However, credit card companies spend millions annually looking for new ways to bait that treacherous hook. They are not blameless in their rapacious and relentless pursuit of profit at our expense.
@XianZhuXuande: I disagree about credit cards being even a useful tool, let alone a great one. But then, I'm a big ol' Dave Ramsey fan, so I doubt we're going to see eye to eye on this one.
I can speak from painful experience - it is not hard to get a credit card as a college student, and by all means avoid getting one except for a single "rewards" card that you pay off every month.
I had a few credit cards that they literally gave away to college students with a slinky, tshirt, etc, and ran up a decent balance in college. I thought everything was great because I had a good paid internship and a "guaranteed" job after college... and then 9/11 happened.
Anyways, moral of the story for college students (and really anyone) should be to have a rewards card that gives you cash back or gift certs at your favorite retail establishment and use it as a cash proxy for purchases / bills, and pay off that balance every month. That way you're still living within your current means, and getting extra rewards for your purchases.
Just don't get into the habit of saying, "well I'll pay it off next month instead" because that's a sure-fire way to start the problems.
@methamp: Exactly. When I applied for my first credit card through my bank, they denied me based on no credit history. I had been an authorized user on my parents card for about 7 years, so my credit report showed 17 years of history (how long they had the card for), but when I called to ask why my 17 years didn't count, they said authorized user status is meaningless since I wasn't responsible for paying the bills.
@ArcanaJ: The point is that if you're smart with them, they can help you get a better credit score, but you really need to watch your spending. My mom says I should use debit/credit cards like a checkbook, writing down every fine on paper after the transaction. I personally just have a Wachovia card, and keep paper reciepts in my pocket as a vague reminder of what I've done, and check Mint once or twice a week to see my situation. Being in college, I make income a very small amount of the year, so my balance varries widely, but I try to keep at least $300 around for unexpected expenses, especially for healthcare, since usually $150 to $200 is enough to tide a situation over until insurance problems work themselves out.
@ArcanaJ: Don't be silly. I got my first credit card when I was fifteen and I've paid it off every single month since. I haven't missed or been late on a single payment, and I've never paid less than the full amount owed. I use it for almost every purchase that I make. Until recently I'd been collecting cashback points, but now I've decided to pay $35 each year to collect Airmiles on the card, as it is connected to an airline I use several times each year. My credit card and I have been together for nine years now, and our future looks just as promising!
@ArcanaJ: Your totally wrong here about buying a house. How long would the average person have to work to save up $150,000? and why would it make financial sense to do that instead of responsibly building credit, using your good credit to acquire a low-interest mortgage. Why would you pay rent for all of those years (money you give up and never get back) when you could have been making low-interest mortgage payments and building equity?! There is NOTHING wrong with building good credit. Especially if you can do it while never paying interest.
@pfblueprint: Agreed. Even if you are careful to keep your number/pin secret, there are still problems. Overdraft fees will suck an account dry ASAP, and banks don't go out of the way to get you a timely warning that you've run out of cash in your checking.
However, if you never use your PIN at the store, you do get similar protections to a credit card and get to ride the float and possibly reward points, depending on your bank. I have a student debit account, so my rewards suck, but having 3 days until a charge goes through is generally a good thing, since it gives me more time to plan ahead if, heaven forbid, I run low and need my mom to get me some cash ASAP.
@varro: I think they do, but I hear it's awfully selective, and it still is not used often. Of course, the accounts have great features and buyer protection, so if your big ticket item places take it, then this is a good choice, and the few places taking it thing may be a feature, as it encourages you to spend less.
@coreyander: USAA has a pretty decent student credit card. I believe the limit starts at 250 or 500 dollars your freshman year, then increases each year by 250 dollars. I believe at age 23 it converts automatically into a regular credit card. So my limit of 1250 went to 3500 overnight. It is nice to have that high a limit in case of emergencies.
@TVarmy: If you're a responsible user of a debit card, you check your account status frequently online and therefore will know before you overdraft anything.
I had a credit card even in high school. In college I think I had like $75k credit line between my cards and had to constantly call them to reduce my lines of credit. In retrospect I shoulda charged like crazy when I was <18.
I remember when I was a freshman in college and got a Sam's Club membership the worker was making fun of how young I was but quickly shut up once they saw I was pre-approved for a Sams card for $15k haha.
No wonder the economy is where it's at with loose lending standards and people's desire for instant gratification and irresponsibility. I'm glad credit/lending is starting to tighten.
@Dan W: Personally, I'm glad that the industry is starting to tighten as well.
For far too long, some of the financial institutions have let too many people way go over their heads. Not to mention that the financial institutions have become excessively greedy as well.
However, I still believe that they should tighten in such a way as to not to choke everybody off at the same time. The way they're doing things is the fast track for yet another kind of disaster.
To make a drug analogy, it's like cutting off an addictive drug supply completely and without any notice when more than half the population is still addicted and still desperate for more. I don't even want to know what the withdrawl symptoms are... they don't look too pretty for me.
My first card was a secured card with 300 bucks on it. That was three years ago. I've paid off every bill in full, had my credit limit increased almost fifteen-fold (but never hit it), and qualified for loans without a cosigner because of it.
Credit cards are extremely useful financial tools, but if you can't handle money, leave your wallet at home. I find I blow through cash much more quickly so I don't usually take it with me.
They are also much safer than debit cards. Try doing a charge back with a debit card. If someone steals your debit card, the money they spend is pulled directly out of your account - you lose, at least initially. If someone steals your credit card, it's pulled out of someone else's, and your cash is still safe.
Internet shopping - almost ubiquitously it is said not to use debit cards on websites because of the gross security risks. Since you can save money shopping online, this is another advantage of using a credit card to leverage your financial resources.
Rewards - apart from "Keep the Change" which is ridiculous unto itself, debit cards don't offer any. If you leverage your credit card rewards you can get benefits without having to pay for them (cash back, etc.)
Building credit - there's a debate on whether one should rent or own a house, which I won't get into. Same with cars - some people like buying with cash, and that's great. Say you want to start a business, however. Likely you will need a loan. If you have no credit built up, good luck qualifying for one.
I am for credit cards because I knew what I was getting into when I went to my bank to ask for one. Those who call them "evil" are grossly mistaken, among other things that I won't bother typing here.
@ArcanaJ: For me, it's a tool. I get 1% cash rebates, a possibility of a chargeback and extended warranty on my electronics - for free.
The trick, is to pay in full every month.
@azntg: you offer some good advice & i don't mean to pick, but this information is flat out wrong:
"in this credit climate, I'd go as far as to say that creditors are actually favoring those who pay-in-full, on time, every time.
no way. actually, credit card companies make the most money off people with mid-range credit that charge close to their limit & only pay the minimum. while there is an opportunity to make money off users that charge & pay off in full, that income is negligible in comparison to interest charges & fees. cc companies use a variety of complex matrices to cherry pick customers that they know will utilize their card in this way. don't believe me? take a look at how fair isaacs (creator of the FICO score) helps (pdf file) --> [www.fairisaac.com]
If anything bad happens after you use a debit card, there are very few legal (federal/state/local) protections available and you're essentially at the complete mercy of your bank.
actually, the protections with debit cards are almost the same as those with credit cards. regulation e ("the EFT act") is the main body of legislation that governs the level of risk a consumer is exposed to when using a debit card. & to be honest, that's just the beginning - it's a weekend & i really don't feel like working today, so here's a link - read for yourself: [www.federalreserve.gov]
note that VISA-branded debit cards carry the same "zero liability" coverage as visa-branded credit cards, meaning you are not liable for any fraudulent activity for transactions that pass thru the VISA network. also note that i am not taking a stance on the debit vs. credit debate here; just debunking misinformation.
It's a great way to "inherit" age and tradelines fairly easily, but if you're not careful, piggybacking can seriously damage your credit if things go wrong.
as someone else already pointed out, piggybacking no longer affects your credit score, so becoming an authorized user doesn't affect your credit at all. also, it would be against the law for credit card companies to damage an authorized user's credit as they are not contractually liable & therefore are not legally responsible for the debt. negatively impacting a person's credit for a debt they are not contractually liable for would be a violation of quite a few federal laws, most notably the FCRA & FACTA.
===
you are far more advanced in your knowledge of these matters at your age. congrats, good luck in school & i hope this information helps.
Stories of FICO 08 ignoring piggybacking when calculating score are erroneous:
However, even though an authorized user still gets a FICO score up-bump, banks that do a hard pull will see the authorized user account flagged and will likely not consider it when determining credit worthiness.
@mac-phisto: that last part was meant to say "you are far more advanced in your knowledge of these matters than most at your age."
& sorry for the book. =)
I applied for the Citi mtvU card a couple of months after I turned 18, and they sent me a card with a $2000 credit limit. Shame on Citi...yes, I'm responsible with my credit, but a lot of people my age would probably go to the mall and max out the card after seeing the magic $2000 number. And as a 19-year-old sophomore in college, through applying for CCs and credit limit increases, I've managed to get $20,000 in unsecured credit in 5 credit cards; $14,000 of that is with JPMorgan Chase. (note that's credit, NOT debt!) And that's not even with a cosigner or anything.
What the fuck are they thinking? How on earth is it right that a 19-YEAR-OLD COLLEGE STUDENT is able to get over $20,000 in high-rate unsecured credit cards? Is it any surprise that our nation is having a credit crisis?
There is another option to use when getting your first credit card: Have one of your parents be a co-signer for it.
@ArcanaJ: I'd like to meet the person who can afford to buy a car, house, and college education up front without credit. I have all of them, and can somehow afford a monthly payment... In these cases, credit was used as an investment tool that now yield higher returns.
Used responsibly, credit cards give consumer protection, traceability, and simplicity. If you use them responsibly, I don't see a single negative thing about them. In fact, you're safer using them then using cash/a debit card in many cases...
Why is all the text bold now? I don't like it.
@ArcanaJ: Some people also want the flexibility of making one payment at a specific time. I pay my card off monthly, but it is much more convenient for me to deal with paying one bill on the 9th of the month, every month, instead of going to the ATM when I need cash and trying to remember how much cash I spent so far. Plus, as someone said above, rewards are good. I get 1% cash back (not the best, but free money!) on all purchases. And I can initiate a chargeback if a company fails to uphold their side of the transaction... try that with cash.
@Dan W: What company in the world extended a $75K limit to a high school/college age kid? I don't even think I know any fiscally responsible adults with a long credit history who have that much...
@varro: Yes, they do. They are the AMEX Green, Gold, Platinum, and Centurion cards. The cards' annual fees are $95, $150, $450, and $2,500 respectively.
im 20 and i have had two credit cars. I started with guitar center credit card. no interest for a year.
I then got a chase platinum card and have no interest for a year again.
Its really easy to build credit history when you have no interest to pay!
My parents are dead beats....
Thanks for rubbing it in.
I'm 21 and had no trouble getting a Visa card from Wells Fargo on my 18th birthday. My parents insisted that I get a card to start building a credit history while I was still young enough that they wouldn't feel qualms about bailing me out should I demonstrate stupidity in managing my finances (yes, I'm a spoiled upper-middle class college student). I've had the card for 3 years and have a FICO score in the low 700s. I've followed only 2 rules:
1. Don't charge more on the card than you have in your bank account.
2. Pay the bills on time every month.
Hasn't failed me yet. But I'm also one of those "expect the worst" people that gets nervous if my checking account dips down near $500. It's probably stupid to keep that chunk in there just sitting and not earning interest (I have one of those HSBC online savings accounts too) but the $15 in interest I'm not earning by leaving it in checking is worth my peace of mind. At least that's how I rationalize it.
Best advice I've ever heard for getting a credit card: go to a credit union. If you have as little as $500 cash you can get a secured loan (basically, a loan to yourself that you pay off) and after you're done you get a credit card. That's what my lil bro is doing since he doesn't have enough credit to get a card. It's a shame that so many people don't take advantage of local credit unions.
Wait, we're telling college students how to GET credit cards, rather than to avoid them?
Oh, Consumerist! how you confuse me.