“I want to create a good credit history for when I need it, but no one will accept my credit applications because I’ve never had credit. What should I do?”
Trying to establishing credit for the first time can feel like one of life’s cosmic jokes. You can’t get credit unless you already have credit. Well, that’s not strictly, true. You’ll probably get a few of your applications accepted, but only by credit card companies offering monstrously high interest rates. Rates that make it too expensive to build a credit history, even if you’re just charging a few lattes and lunches.
It does sound like an impossible situation, but there are options. Consider these:
Have your parents open a credit account with you as a joint holder. You will be using your parent’s credit to establish yours. Remember that what you do will affect their credit, and vice versa, so act responsibly and only make purchases that you can afford to repay at the end of the month. This works great when you’re still in school or still living at home, because your parents have a big influence on how you spend your money.
What to watch for: Make sure you’re a joint card holder and not an authorized user, because authorized users are no longer tracked by the credit reporting agencies.
Open a secured credit card using your own savings account. You will be using your own money as collateral for the credit card. If you choose this option, the bank will help you set it up. It will be like having a regular credit card, but your limit will be the amount in your savings account. This is not a debit card! You will need to make payments on the card when you use it. After about a year of using the secured card responsibly, you will establish a credit history. This will allow you to get a traditional credit card.
What to watch for: Make sure the bank reports your credit card activity to the credit reporting agencies. Find another bank if they won’t do it. Watch out for high annual fees or mandatory insurance policies. Shop around for the best deal.
Jill Russo Foster is the author of Cash, Credit, and Your Finances: The Teen Years. She provides practical tips for every day finances. Learn more about protecting your credit and living within your means, with Jill’s popular free reports and bi-monthly ezine, available here ==> CashCreditandYourFinances.com
Comments on this entry are closed.