Whether you’ve just graduated from high school or college or are at some other point in your young adulthood, you may have considered getting a credit card. It can be a great tool in building credit, but also represents a major financial responsibility.
Plus, how do you even qualify for your very first credit card?
There are actually quite a few ways to accomplish this. After all, everyone has to start somewhere, right?
Keep reading to find out everything you need to know about getting approved for your first credit card — plus some tips on how to use it responsibly.
How to Start Building Credit
If you’ve never had a credit card or a loan in your name, you probably don’t have much of a credit history. In fact, it can take a few years to build up a truly robust credit history and start earning a higher credit score.
How can a credit card help you achieve this goal?
Positive Payment History
Having a positive payment history is the strongest factor in determining your credit score. That helps you qualify for better interest rates and terms in the future when you need another type of financing, like a refinanced student loan, a new auto loan, or even a mortgage.
Once you start paying your credit card bill on time each month, you’ll start to get positive entries on your credit report. Over time, that adds up.
Now it’s important to note that as long as you pay your minimum balance due each month by the due date, it counts as an on-time payment.
But here’s the catch.
Even though your entire balance isn’t due, anything you don’t pay starts to accrue interest. So the next month, your balance will be higher, even if you don’t make any new charges on your credit card.
Using Your Credit Card Responsibly
Because your credit card debt can quickly skyrocket if you keep using your card without paying everything off, it’s important not to use it for things you can’t actually afford. Yes, it’s a nice backup for a financial emergency.
But make sure you have a plan of how you’re going to repay each purchase.
If you’re just getting your first credit card as a way to build your credit, then all you have to do is use it to pay one bill a month. You can set your credit card bill to be paid automatically through your checking account or create a monthly reminder. That way, you can take advantage of those on-time monthly credit card payments, which account for a large amount of your credit score.
Remember, even one late payment can cause a major drop in your credit score.
Create a plan that allows your credit card to work for you, not against you.
How do you get a credit card for the first time?
There are typically two ways you can get approved for your first credit card, especially if you’re under 21 years old. See if any of these two methods are a possibility and you’ll have a much easier time qualifying.
Use Verifiable Income
One of the biggest factors credit card companies look for is verifiable income because it shows that you have the financial means to pay your minimum balance each month. Unfortunately, a stipend from your parents doesn’t count, so if you’re in college and get cash from home each month, that won’t help you get a card.
Basically, you need to have some type of job, whether it’s part-time or full-time. You may also be able to report scholarship or grant money, but not your student loans. That’s considered debt, not income, even if you haven’t reached the repayment stage yet.
When it comes to reporting verifiable income, you need some sort of documentation, whether it’s tax statements or pay stubs. You may not be asked to provide these, but you need them on hand in case they are actually requested by the credit card company.
Use a Cosigner
Whether you don’t have much verifiable income or you simply want a larger line of credit, consider using a cosigner for your credit card application. This can be a family member or even a close friend who has an established credit history and is willing to share the responsibility of the credit card with you.
Now, a few words of warning before you start calling your parents or older siblings and asking them to be your cosigner. Any activity on the card equally impacts both of your credit reports. The debt will be listed on both of your reports, as will any late payments. You’re both on the hook so if you decide to default on the card, your cosigner will also start getting collections calls.
Just the same, if your cosigner has access to the credit card account, they could potentially make charges that you’ll be responsible for paying off. So this strategy should only be used with someone you inherently trust and who understands the potential consequences of sharing a card with you.
Get Added as an Authorized User
Another option to build credit for people who don’t have much of an income is to get added to a credit card account as an authorized user. Similar to using a cosigner, it will generally be a family member or someone you trust.
They can add you to their credit card account and their full payment history will also be added to your credit report. This will immediately give you good credit scores and allow you to apply for better credit cards that you otherwise wouldn’t qualify for.
What is the easiest credit card to get?
Be sure to compare your options because these specialty cards frequently come with high interest rates or annual fees. You’ll want to look for a credit card with a low annual fee or one that waives the annual fee altogether.
It’s also very important to find a credit card issuer that reports your monthly payments to the three major credit bureaus so you can establish your credit history.
It’s also good to check with your bank if you already have a savings or checking account. Sometimes that existing relationship can get you the approval you need. Here are some other options to consider when searching for your first credit card.
Student Credit Cards
Many branded credit card companies have student credit cards available. For college students with at least a part-time income, a student credit card could be an excellent option. They usually come with low credit limits, but you can get a higher credit line once you’ve established a positive payment history.
Just about any major chain store offers a store credit card these days, whether it’s a department store or a specialty store. They’re often easy to get approved for because they start with low limits. You can usually even apply right at the checkout counter.
But just like anything, retail cards come with some limitations.
You can usually only use a retail card in that particular store, or sometimes in other stores within a retail group. For example, if you get a Gap card, you can also use it at Old Navy since they’re in the same brand group.
Just be sure that you don’t use your retail card as an all-access shopping pass, especially just to access some type of rewards bonus. You still need to pay off the balance each month, otherwise, you’ll likely be paying above-average interest.
Secured Credit Cards
You probably won’t get approved for a credit card that targets people with excellent credit, since you have a limited credit history. Instead, consider taking out a secured credit card. You have to pay a security deposit, which is held in a bank account and equals your credit limit.
However, you can’t use that money to pay off your balance. It’s used as collateral in case you start missing payments on your secured card. But if you’re having trouble getting approved for other credit cards, a secured card can be a good first step to build credit before you move up to an unsecured card.
When you first start applying for credit cards, expect to get denied. It’s likely to happen if you don’t have any credit history. But be strategic with your applications. Don’t shoot for top-tier rewards programs, because you’re very unlikely to get approved for cards that require excellent credit.
Instead, do your research. Every credit card application temporarily reduces your credit score by a few points. Pick ones that are targeted towards your demographic and also apply for them around the same time. They’re often counted as a single inquiry by the credit bureaus.
By using these few tips, you can start building your financial history with your first credit card. Go forth and use it responsibly!