How does an 18-year-old with no credit history get a credit card?

February 18, 2006 9:06 AM

I'm turning 18 in April. I have no credit history. How do I get a credit card?

I won't be enrolling in college for at least another year, so student offers won't work. I have no employer other than myself, so there are no paystubs or bosses to vouch for me. My parents are not interested in being co-signers on a joint credit card.

I have for several years maintained savings and checking accounts at Bank of America, Citibank, Harris Bank, and some community banks. My tax returns can provide proof of (self-employed) income.

But I have no credit history (I have checked). I would like to get a credit card (instead of the many debit cards I have now) and a margin account on Scottrade (just in case--not for crazy speculation).

Here are my options, as I see them:
1) Undesirable: Get a secured card with a low ($500) credit limit and build my credit for a year, then get a real credit card. This is a sure thing, but I'd like to not have my money tied up like that, and I would like to take advantage of the float on credit card purchases.

2) Desirable: Get a real credit card with a low limit and use it responsibly to build my credit over time.

How can I improve my chances of being granted a real credit card upon my turning 18? Has anyone had any experience with this? Is there anything I can be doing now, at age 17, to establish credit? What banks would be most likely to give me cards immediately (since each credit rejection, as I understand, hurts my credit rating)?

posted by qslack to work & money (32 comments total)

When i was young, everyone i know first got Department Store Cards to start with (they weren't doing all those college offers like today)---they were easy to get and they established a credit rating and record. I started with Macys. They have very high interest rates tho, so be careful. After 6 months to a year of using one of those, you should be able to get a regular one. If you're working it's even faster. Dept. stores tend to give them to everyone, or at least used to.

I've heard that debit cards connected to an checking account with overdraft protection can work too, but i'm not sure it's true.
posted by amberglow at 9:11 AM on February 18, 2006

Establishing credit is not too difficult. I moved to a foreign country and had to establish a credit rating.
The first thing you should do is speak to your bank manager and explain your reluctance to get a secured credit card, but unfortunately it's often the first step in establishing credit so you may be stuck with that for at least 6 mos.
Some companies like Capitol One are happy to assist with people such as yourself but they have high interest rates.
You could also sign up for a cell phone acct with some of majoy wireless accts. Those accts are relatively easy to qualify and it's an excellent way to establish credit. Also, I don't know what your living situation is, but try getting a couple of utility bills, like gas and electric into your name. That's another way to get a credit rating.
posted by GoodJob! at 9:31 AM on February 18, 2006

and a margin account on Scottrade (just in case--not for crazy speculation)

With all due respect, that's absurd. You want to be able to borrow money to buy stocks "just in case" - just in case you wake up one morning and feel that the most important thing you can do is gamble in the stock market?

As far as a credit card goes, you can much more easily get a secured credit card than a regular one - see this Q&A from earlier today, for example.
posted by WestCoaster at 9:31 AM on February 18, 2006

With all due respect, that's absurd. You want to be able to borrow money to buy stocks "just in case" - just in case you wake up one morning and feel that the most important thing you can do is gamble in the stock market?

Actually, margin accounts have uses beyond borrowing beyond your means. I believe you are required to have a margin account to sell short, etc. It makes trading stocks easier in other respects too.
posted by reverendX at 9:45 AM on February 18, 2006

In addition to a secured credit card, you could also seek to establish credit through utility bills. Can you sign up for cable, ADSL/cable Internet, long distance, local telephone or anything like that? You might also see if the bank will give you some sort of overdraft protection -- that's credit too. But do things one at a time. TOo much all at once will be hard to manage and may have a negative effect on your credit.

Tying $500 up in a bank account for a secured card shouldn't be such a big deal if you're truly ready for credit. You should be living in such a way that you can always make more than the minimum payment and you should have six months of living expenses already saved up (not too much money, since you live at home). Sure, taking advantage of the float is nice, but you ideally should live in such a way that you're a month ahead of all of your payments -- you have the money before you even buy. If you can start off that way at 18, it will hold you in good stead and you won't run into hot water if a client pays late.

See if the bank will let you tie up the money in a cashable GIC (certificate of deposit), high interest account or some other vehicle.
posted by acoutu at 9:47 AM on February 18, 2006

a) I don't know why you would have accounts open at half a dozen banks. Pick the best one. Move your money there. Banks are nicer (in several ways) to people who have a lot of money deposited with them.

b) The secured credit card IS the way forward. If you're a bad credit risk, people don't like to loan you money without security. If you can't spare $500 or $1000 to put in a bank account and not touch for a year (it earns interest, you're not really losing anything), you aren't a good credit risk either.

c) A margin account at a brokerage will have security requirements as well. Generally, this is the portfolio that you have with them. Stock exchange rules require a certain amount of equity in your portfolio account before you can even contemplate getting a margin account (I think it's a $2000 minimum). This is very similar to a secured credit card. The broker is not going to let you gamble with his money without any sort of security he can lay his hands upon if you gamble and lose.

d) If taking advantage of the credit card float - buy in March, pay in April - is a major attraction to you, you are living too close to the edge of your means. If you can't buy something in cash, right now, you should NOT put it on your credit card.

Some well-intentioned advice: take a deep breath. The new iPod or Xbox 360 will wait a few months. Consolidate your finances. Get a secured credit card and use it wisely. Build up a slush fund, so that you're paying your bills from the paycheck of a few months ago, not the paycheck that you're getting next Friday. Don't envy your friends' goodies - that's a no-win situation, because if you have ten friends, each with one goodie, that's ten goodies that you're envying and you only have one income.
posted by jellicle at 10:11 AM on February 18, 2006

I got a capital one card when I was in highschool -- probably any sub-prime lender will give you something. But because they are sub-prime lenders, you have to understand that what they are doing is more or less predatory lending, and not use them to rack up debt.

A secured credit card is probably better, all in all.
posted by advil at 10:21 AM on February 18, 2006

You might want to check out this site its a new type of lending between peers but they report to credit agency so it would give you some history of good repayment.

http://www.prosper.com/
posted by tke248 at 10:43 AM on February 18, 2006

Honestly I'm surprised you aren't fighting them off with sticks. It seems that fresh 18 year olds are prime targets for CC companies. As long as you have an income (self-employed or not) I don't see how you'd have any trouble whatsoever getting a CC at 18. They just love to send those things out to young people and get them hooked and drowning in debt early. I think if they were allowed to they'd offer them to 14 year olds.

Oh, and why in the heck do you have accounts at half a dozen banks? That makes no sense, just pick one.
posted by Rhomboid at 11:20 AM on February 18, 2006

In addition to a secured credit card, you could also seek to establish credit through utility bills.

This is a good idea. See if your parents can transfer the cable or gas bill to your name (of course, with some kind of reimbursement promise.) This kind of debt is like an American Express card in that you have to pay the entire balance each month or you get creamed with fees and additional charges.
posted by Saucy Intruder at 11:45 AM on February 18, 2006

Or....don't.

Seriously. There's no good reason to "establish credit." If you want to succeed financially, the best possible thing you can do for yourself is never go into debt in the first place.

Buy cars with cash. The only instance in which you will probably borrow money is for the purchase of a house, and contrary to popular belief, you don't need a FICO score for a traditional mortgage. If you've paid rent on time or early, and have records of this, you qualify for a low interest traditional mortage via manual underwriting.

If you stay out of debt, you have the best chance to build wealth and be financially comfortable for the rest of your life.
posted by griffey at 11:55 AM on February 18, 2006

Am I the only one who has never had a utility company report a payment history? Sure, they *check* your credit history, but never actually report it. My credit report only has credit cards and loans (car, school, home).

If you want to succeed financially, the best possible thing you can do for yourself is never go into debt in the first place.

I would say that this is only true if you are pathologically unable to handle credit. (Which, admittedly, may be true for a lot of people.)
posted by trevyn at 12:48 PM on February 18, 2006

Seriously. There's no good reason to "establish credit."

This is categorically incorrect. While it is true that you can possibly get through life without credit card or loan debt, if and when the time comes for you to buy a house, you will be greatly helped by a lengthy and solid credit history, including a successfully handled credit card account and at least one car loan. A top-notch credit rating often means you qualify for loans and rates that most others aren't even offered.

I speak from experience here. When I was 18, my mom co-signed on a credit card with me for the express purpose of building up my credit rating. I was told that the card was for three things: buying gas for my car, buying my books for school, and emergencies. (She said she'd cover the books.) When I bought gas, I put it on my card and wrote her a check or gave her cash for what I put in my tank. She took that money and put it in her account, and when the monthly bill came, she paid it off in full. After awhile it became my responsibility to track my expenses, keep the money saved, and pay it off at the end of the month.

By my twenty-first birthday, I had a platinum MC with a thirteen thousand dollar limit. I also knew how to responsibly handle a credit card. I made some mistakes, yes, but kept an overall good history, and when I bought my house two years ago, we got a damn good rate on our mortgage and didn't have to pay mortgage insurance, which is fairly unusual for first-time homeowners. The reason was our combined credit rating.

Use it responsibly, pay your bills on time, and you'll be amazed how the wheels are greased.
posted by middleclasstool at 12:50 PM on February 18, 2006

I think you're looking at this all wrong. The best you can hope for right now is to establish some form of credit; not abuse your credit; and wait a few years until you have an actual credit history before applying for a "regular" card.

In the near term, the biggest addition to your credit rating is going to come through the existence of student loans. Those will affect your credit rating more than a credit card will, and come with a negligible risk to your rating.

At the absolute most, get a Target card or similar - they are real Visa cards and it seems that everyone that applies is approved, even if only for $250 limit. Put small, regular expenses on that card (e.g., gas, cell phone, etc.) and pay it off every month.
posted by nathan_teske at 12:52 PM on February 18, 2006

The key is not to just establish credit, but to establish reportable credit. That is, credit that will report a positive history to the credit reporting agencies. As for the ideas to "establish credit" through utilities, cable, etc....that won't work. They do not report regular credit history. The only time you would see them on your credit report is if you failed to pay them and it was turned to collections. This is also the same with most cell phone providers, as someone suggested that. Your best bet: the secured card route with perfect payments and after six months or so, other avenues should open up. Good luck!
posted by Gerard Sorme at 1:08 PM on February 18, 2006

Just say no to secured credit cards. It's too easy to establish credit without resorting to them.

Look, this is really easy:

* Every big newspaper prints a list of the best credit card deals (low interest rates) in their business sections, along with the phone numbers to call. I'm sure you can find their numbers online, too.
* Call these card companies one-by-one and ask for a card. They'll let you do the application and approval process right over the phone.

Lather, rinse, repeat until you have as many cards as you think you need. Should take no more than two hours to call 10 companies.

It's. Really. That. Easy. Anyone who tells you different just doesn't know what they're talking about.

Once you get the cards, then throw them all away. Seriously. OK, throw them all out except for the one you'll keep for emergencies. Having credit is a good thing. Having credit card debt is a bad thing.
posted by frogan at 1:35 PM on February 18, 2006

Honestly I'm surprised you aren't fighting them off with sticks. It seems that fresh 18 year olds are prime targets for CC companies.

That's exactly what I mean. It's easy. It's dangerous as all hell, but it's easy. ;-)
posted by frogan at 1:37 PM on February 18, 2006

Thanks to all for the advice!

To summarize the discussion up to this point for other readers:
The message I'm getting is that lenders like Capital One and store cards are the best way for someone like me to get a real line of credit with no credit history. I'll try those, searching the newspaper for specific offers. If not, I'll go with a secured card. I'm also going to look into having the utility bills put in my name.

I'm interested in using the float that a credit card offers because I very often make purchases for which I am reimbursed a few weeks later. I certainly do not plan to pile unnecessary purchases onto my credit card, nor do I plan to use it to artificially increase my standard of living.

I understand the arguments against using credit, and I think that it's an important discussion to have, but I feel confident that I will be able to use credit responsibly enough. Also, just to clarify, I do not want to make daytrades on margin in my Scottrade account. I am simply interested in having the ability--though I may never exercise it--to sell short. That's not the primary reason I want to get credit, though.
posted by qslack at 1:43 PM on February 18, 2006

frogan's advice is questionable. First of all, you wouldn't be approved for the cards based on what you wrote. As for throwing out all but one of the cards - that is credit suicide. Those cards still report to the CRAs as open credit lines with whatever amount you were given. When you go to get real credit for a car loan, etc. your fico score will be awful as your report would show a lot of available credit to you that will increase your rate on a car loan and even push you into denial territory. Whatever you do - don't get a bunch of cards and get available credit which will be reported to Equifax, Experian and TransUnion. As I said, that is credit suicide. Come visit at CreditBoards or other forums like it. You will learn a lot and get valuable assistance in establishing credit.
posted by Gerard Sorme at 1:48 PM on February 18, 2006

Put everything you possible can on your credit card once you get it. I was always very aware of how much money I had available and if any major expenses were coming up in the couple months ahead. Pay in full each month and use the float period to your advantage (time value of money).

And I agree with those above that say that telephone bills aren't going to help with a credit rating. I can pay my bills with my credit card, from a credit rating point of view the bills can't really determine a good from bad debtor if they can be pushed off onto other forms of credit.

Go to your bank, and see what credit card they recommend. They offered me what is probably effectively the same as a college card (high APR, low initial limit, had no trouble getting it out of high school with no job).
posted by geoff. at 1:53 PM on February 18, 2006

Those cards still report to the CRAs as open credit lines with whatever amount you were given. When you go to get real credit for a car loan, etc. your fico score will be awful as your report would show a lot of available credit to you that will increase your rate on a car loan and even push you into denial territory.

No, no and no! It will show an open credit line with a ZERO balance. This is a GOOD thing when someone is starting out.
posted by frogan at 2:02 PM on February 18, 2006

frogan, An open credit line with with a zero balance and $1000 in available credit means what? To a lender it means you have quick access to ready cash and possible heavy debt. It's the worst thing to show. From a credit lenders perspective those open lines of credit are no different than if they were actually all used to the max. One of the frequent reasons given for credit denial based on a credit report is: Too much available credit. The income/debt ratio is also calculated as income/credit availability. This is all basic stuff, really, and I would recommend you reading the credit card forums and other sources of information.
posted by Gerard Sorme at 2:14 PM on February 18, 2006

An open credit line with with a zero balance and $1000 in available credit means what?

It means that the individual's ability to manage (make prudent decisions about) generous available credit is recognized.
FICO likes to see a very large "cushion" of unused credit limit above the balance of each revolving account. If you're nowhere near maxing out any open cc account you have, you apparently are not desperate for money.
You've been reliably meeting your financial commitments without having to run up disproportionately high cc balances.
On the other hand, using most* of the credit line of one or more accounts is considered by FICO to indicate an increased risk that the individual may be getting overextended and might be more likely to default in future. (*Most = 50% or more of the credit limit)

On the other hand, a particular lender who is considering extending a large loan amount may request or require that one close down part of one's available credit in order to be approved for the new loan. That lender is gauging whether one would be able to pay the new loan plus all the other monthly payments, if one decided to max out the other accounts (Which is a HUGE possibility with for an 18 year old with no credit history). However, shutting down available credit is likely lower one's score somewhat.



Found and paraphrased from one of the gazillion manage your credit sites on the web. They all basically say the same thing. Of course, individual circumstance's may vary ;)

Even Experian notes that you can possibly increase your credit score by opening accounts and not using them, but they don't recommned it.
posted by whoda at 2:57 PM on February 18, 2006

This is categorically incorrect. While it is true that you can possibly get through life without credit card or loan debt, if and when the time comes for you to buy a house, you will be greatly helped by a lengthy and solid credit history, including a successfully handled credit card account and at least one car loan. A top-notch credit rating often means you qualify for loans and rates that most others aren't even offered.

Categorically incorrect?

This is only false for lenders who rely on FICO only mortgage calculations. For manual underwriting, a FICO score isn't necessary at all. A solid record of paying your landlord early or on time, and having MONEY are the only two things truly needed for a mortgage. You have more money without debt. Therefore, it is certainly NOT categorically incorrect. It is false if you only deal with lazy lenders.

I understand the belief that you can handle the card, that you won't spend more than you pay off....but that's not what happens with 99% of people.
posted by griffey at 3:53 PM on February 18, 2006

One of the frequent reasons given for credit denial based on a credit report is: Too much available credit.

Since we're talking about an 18-year-old hankering to build credit, I think this is a problem he/she would like to have. ;-)

whoda nailed it for me. Thanks.
posted by frogan at 4:38 PM on February 18, 2006

Even if we all agree that carrying debt on a credit card is a bad thing I think it is still obvious that just having one or more credit cards -- even if they are never used -- is a good thing. If not for establishing credit history, for certain situations like renting a U-Haul, or staying at a hotel, emergency car repair, and so on. I am sure there are some people that will still hold out and maintain that you should just forgo these situations that require a credit card, but for most people it makes life a lot easier. Again, I'm not saying everyone should be drowning in credit card debt but at least having one available in certain situations is almost a necessity.
posted by Rhomboid at 4:54 PM on February 18, 2006

Gerard, I have flawless credit and some of my utility bills show up on my (Canadian) credit report.

And, Griffey, there are valid reasons to establish credit. Some landlords will not rent to you unless your credit report shows a history of managing both rental and other credit accounts. Mortgage lenders also want to see a credit history. Some utilities, such as telephones, also prefer that you have a credit card -- if you're applying for a phone line and you're not a student. Also, to book a moving van, hotel room, or plane ticket, you need a credit card. If your employer (or client) needs you to go out of town, you may also need to be able to put hotel rooms, cars, plane tickets, taxis and meals on a credit card. But establishing credit is only worthwhile if you're establishing good credit.
posted by acoutu at 4:58 PM on February 18, 2006

Will Bank of America not give you a credit card? They approved me when I was young (~20) with little/no credit record and had a checking/savings account there.
posted by needs more cowbell at 8:20 PM on February 18, 2006

Also, just to clarify, I do not want to make daytrades on margin in my Scottrade account. I am simply interested in having the ability--though I may never exercise it--to sell short.

And just to clarify - I still think this is absurd. Selling short - which opens you to unlimited losses if the stock increases in value - is gambling unless you have insider information, in which case it's illegal.

Suppose someone were to say to you "I'd like to establish a $5,000 line of credit with Harrah's, in case I decide to fly to Las Vegas and gamble. I don't plan to do this, but I just want to have the ability." Would you think "Sure, why not - that's the sort of thing any about-to-turn-18 year old should aspire to."?
posted by WestCoaster at 8:27 PM on February 18, 2006

This worked for me. I passed up the 100 or so credit card offers I got when I graduated from college and found that I didn't have any credit history to use to get a card when I finally needed one. A record of steady payment of utility bills wasn't enough.

Then my fiancee added me as a co-holder on her MasterCard. After a couple of months, I got my own MasterCard offer from her bank. It might also work if you become a co-holder with one of your parents.

Otherwise, what's the problem with a secured card? You use it for a few months and get around a problem that there's no other solution for. Only you and the bank will know, and both of you will get over it.
posted by KRS at 12:20 PM on February 19, 2006

Why start borrowing money? If you can pay a credit card bils you can put some money in the bank and get a debit card which can be used as a VISA/Mastercard, but the plus side is you don't have to pay interest.
posted by JamesMessick at 9:25 PM on February 19, 2006

Check with your bank. Most banks offer not only debit cards, but credit cards with their name. I have a Visa debit card through my bank as well as a Mastercard that is a normal credit card. If you have an established history with the bank it is much more likely they will issue you a card. Have you even tried that route yet?
posted by mikeh at 12:07 PM on February 20, 2006