Getting that first credit card is a right of passage. For the first time, a bank is giving you a thumbs up—you can use the bank's money, and in return, you agree to pay the money back per the terms of the agreement.
But how do you start? How do you get your first shot at proving your creditworthiness when you can't get approved for credit without credit scores since you don't have a credit history?
How to Build Your Credit
Typically, credit card lenders want to see something on your credit report that proves you are able to manage credit before they give you a card. This means that lenders usually want to see at least one active account with a positive payment history for at least six months.
Here are some tips to get your first shot at credit and your first entry on your credit report:
1. Look Good on Paper
Having a job—or another reliable and allowable source of income—is vital. Since you are new to credit and you don't have a credit history yet, make sure that your other vital statistics look good. Lenders will want to see other proof points that you have the ability to pay back the money you borrow.
The credit card application will ask you for your income. If approved, the card will be in your name and you are responsible, so the income must be yours. Be honest about your income because, at the end of the application, you will certify that the information you submitted is truthful and accurate.
How much income is enough? Lenders want to be sure you have the money to repay your debt, called your debt-to-income ratio. Every lender has different criteria, but essentially, the more cushion you have to pay your credit card balance, the better the chances that you will be approved.
2. Know What to Apply For First
Secured credit cards are usually easier to get approved for because you are "securing" the line of credit with a bank account. The amount of your deposit is essentially your credit limit. There are two major things to look for in a secured card:
- Make sure the card reports to at last one of the three credit reporting agencies—Experian, Equifax or TransUnion. Make sure you pay on time so you can develop your positive payment history.
- Watch for high fees. These cards are notorious for high fees, such as application fees, processing fees, and more. So read the fine print.
Store credit cards are typically only able to be used at particular retailers, and they are easier to get than a Visa, Mastercard or American Express card that can be used anywhere. Store cards generally have a higher annual percentage rate (APR) than other cards, and fees can be high. However, payment status of these cards is reported to the credit reporting agencies, so making on-time payments will start to build your credit history.
3. Explore Additional Options to Get a Credit Card
Get a Cosigner
A cosigner with an established credit history and good credit scores can "vouch" for you but if either one of you is late on payments or defaults, both of you will be dinged. Getting a credit card with a cosigner takes a lot of trust because both parties' credit history and credit scores will be negatively affected if payments are not made on time.
Become an Authorized User
The primary account holder of an existing credit card can add you as an authorized user. The primary account holder has the ultimate responsibility for making payments, but you can sometimes benefit from a "halo effect" in the form of a positive entry on your credit report if the account is well maintained.
Keep in mind, though, not all creditors report authorized user accounts to the credit reporting agencies. Also, some credit scores may not weigh an authorized user account as heavily as it would an account where you have joint or individual responsibility.
What To Avoid When Getting Your First Credit Card
- Don't apply for a bunch of credit cards all at once. Each time you apply for a card, an inquiry will be added to your credit report, and too many inquiries will have a negative impact on credit scores.
- Don't apply for a card with sky-high fees or a high interest rate, or both. The costs could keep piling up and make the monthly payments unaffordable.
How to Manage Your First Credit Card
- Always pay at least the minimum payment. Set up automatic payments to make sure you don't overlook important due dates.
- Keep your balances low.
- Pay your balance in full, if possible, every month to build a good credit history.