Convenience. Rewards. 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 college student, you may struggle to qualify for a credit card if you have poor credit or no credit history at all.
It’s a widespread problem. According to the U.S. Government Accountability Office, 45 million people don’t have a credit score it’s a particularly common issue for young adults like you. Why? Because you’re young, and you probably don’t have a loan or credit card in your name. As a result, credit bureaus can’t use any data points about you to determine your credit score.
Luckily, there are some options for college students without established credit histories. Keep reading to learn 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 without a credit history, follow these steps:
1. Check your Credit Report
Before you do 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 look for any mistakes on your report.
FYI: You can view a free credit report from each of the three credit bureaus Equifax, Experian and TransUnion once per year at AnnualCreditReport.com.
2. Do Some Homework
Every time you apply for a credit card or loan, a creditor will use a hard inquiry to check your credit. Each hard inquiry can cause your credit score to drop, so it’s wise to minimize inquiries and only apply for cards you’re confident 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 a lot of them.
Before you apply, do some research to find what the creditor’s minimum credit and income requirements are. Many creditors have prequalification tools you can use to check your eligibility with a soft credit check that doesn’t affect your overall score.
3. Consider a Student Credit Card
If you’re in college, student credit cards can be excellent options. They’re specifically designed for students enrolled in school and typically have lower credit and income requirements than other credit cards, so you’re more likely to get approved without a credit history.
Student credit cards can have other benefits too, such as cash back rewards or airline miles. They usually have low fees, so if you use your card responsibly, you could graduate to a traditional card once you leave college.
4. Apply for a Secured Credit Card
If you aren’t eligible for a student credit card, another option is to apply for a secured card. With a secured card, you’re required to deposit a certain amount of cash — often $50 to $300 — in your account. It then acts as both a security deposit and your credit line; you can only spend up to that amount. Once you reach your limit, you can’t use the card again until you pay down the balance.
As you use the card and make your payments, the creditor will report your activity to the credit bureaus while you build your credit history. Over time, you can qualify for a more traditional, unsecured credit card.
5. Don’t Get Discouraged by Denials
After applying for a credit card, the creditor may deny your application. Don’t get 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 their reason. If that’s the case, you can work on improving those areas to boost 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 handy for a secured card, another option is to ask a parent, relative, or close friend to add 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 off their credit history and build your own. You’ll benefit from it 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’re allowed at all — and when you need to make payments to avoid damaging their credit.
7. Review the Card Terms
If you are approved for a card, make sure you carefully review the terms and conditions. You should specifically pay attention to:
- Credit reporting: Not all credit card companies report activity to credit bureaus. Since you want to build your credit while you’re young, that’s a major drawback. Read the agreement carefully to see if the creditor reports to Experian, Equifax or TransUnion.
- Annual Percentage Rate (APR): The APR is the rate of interest charged over one year. The regular APR applies to purchases and balance transfers.
- Penalty APR: If you miss a payment, however, the creditor may charge a penalty APR, which is higher than the regular APR.
- Account fees: Some credit cards have added fees, such as setup and monthly 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 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 splurge on clothes, electronics, or dinners out with friends. But credit card debt can be a tough hole to dig out of, so only use your credit card for essential purchases you can afford to pay for in cash.
- Try to pay off the full bill every month: When your credit card statement comes, it will show your statement balance and the minimum payment due. If you only pay the minimum, the creditor will charge interest on the unpaid amount. To avoid paying interest charges, pay off the statement balance in full every month.
- Track your spending: Because credit cards are so easy to use, you can quickly rack up a balance. Avoid unnecessary spending by creating a budget to track your finances online. Free tools like Mint and Wally can simplify how manage your money.
- Set up a reminder to pay your bill on time: If you miss your card’s payment due date, you’ll have to pay late fees and your credit score can decrease as a result. To avoid that, sign up for automatic payments or set up a monthly calendar reminder to pay your bill.
- Redeem your benefits to get the most out of your card: Redeem your benefits including cashback rewards, points, or airline miles to get more value out of your card. Some credit card rewards will expire, so review 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 your credit card use. If you max out your card or spend a significant amount of your credit limit, it can hurt your score. Aim to pay off the bill in full every month and use your card thoughtfully.
- Be wary of fraud: Review your credit card account online at least once a month (ideally, once a week). If there are any transactions you don’t recognize, you may have been the victim of identity theft and credit card fraud. If that happens, you can dispute these charges with your credit card company and request a new card to avoid future fraudulent activity.
Improving Your Credit
Getting that first credit card can be challenging, but there are options you can take advantage of as a college student to build your credit. By understanding how credit scores work and using your card responsibly by only using the card for essentials and paying your bills on time you can build your credit and boost your credit score over time, setting yourself up for success after graduation.
Learn More: Do Student Loans Build Credit?
