As countless headlines will tell you, my generation is waiting longer to get credit. The debt collection industry is on our hit list of beloved Boomer relics to kill, right behind Applebee’s, sex and the Toyota Scion.
This was never the case with me. I opened a credit card at 25, after years of pining for that rite of passage, the way late bloomers yearn to hit puberty.
I know people whose parents opened credit cards in their names while they were still in middle school; their credit grew for years — gradually, safely, without their knowledge. What fun! I imagine they all hang out together now, in whatever exclusive club bounces patrons with credit scores lower than 700.
But for many, that first credit card is such a high barrier to entry; annoyingly and paradoxically, you need credit to be able to build credit. And even if you do already have a credit history, the application process itself is often maddeningly opaque.
I put out the bat signal to a number of credit card experts and people my age who made it over the no-credit hump: How do you go about getting your first card? We’ve cobbled together a step-by-step guide to success. In the words of Leslie Nielsen from “Airplane!”: “Good luck. We’re all counting on you.” (You’ll do fine.)
1. What To Look For In Your First Credit Card
First of all, congratulations on this, your first foray into a complicated financial system that our parents were able to mindlessly navigate. Luckily, the first step in the process is also the most fun and least stressful: researching which credit card you want. You get to judge the credit card issuers before they judge you.
The best card for you will ultimately depend on your unique financial situation, but there are some broad-strokes principles that apply to pretty much everyone.
Here is a checklist of the non-negotiables you should look for in your first credit card:
No Annual Fees
Now is as good a time as ever to start getting indignant about paying money to spend your own money. (This rule also applies to ATMs, checking accounts and splitting meals evenly in a large group when you just had a salad on the side of your water.)
“Perhaps one day you’ll opt for a card that offers lots of perks, points and benefits in exchange for an annual fee, but now is not that time,” said Han Zeng, cofounder of InvestmentZen, a personal finance and investment news site. “You’ll have enough on your plate as you work toward building your credit history. Don’t complicate the matter further”
A Low Interest Rate
OK, so some level-setting: If this is your first credit card ever, it is likely that you have a low credit score or no credit at all. Because of this, you can’t expect to come out of the gate with a card that has an amazing interest rate.
That said, you should still be price-shopping cards by their annual percentage rates — the interest you’ll be charged on the balance you don’t pay off each month. For one, a lower rate is a lower rate, and this will matter if you ever need to carry a balance. (The dream, of course, is that you never will — that your credit card spending will be as judicious as if potential mates were monitoring it. But life sometimes happens.)
Second, comparing APRs will weed out out the really bad actors — the companies that know you’re shopping around with your lousy credit and are hoping to take you for a ride. Beware a much higher-than-average APR.
Here’s a good thing to know: the current average credit card rate. (Just Google that phrase — you’ll be greeted with countless websites aching to tell you.) According to Bankrate, as of early March 2018, the average APR for credit cards is 16.84%. Again, your first card’s rate will probably be higher than that, depending on your credit score — mine was in the mid-20s.
No Store Cards
Speaking of astronomical interest rates, stay away from retail cards, no matter how many times they’re offered to you at checkout.
“Retail cards — such as Target, Macy’s, Victoria’s Secret, Best Buy — are much easier to get than bank credit cards, but beware: These come with much higher interest rates,” said Holly Morphew, a certified financial health counselor and founder of Financial Impact.
Here’s something that isn’t in the big print on store card advertisements: Retail cards aren’t some magical variety of credit card — they’re just normal cards from normal banks. There is no Bank of Macy’s or Bank of Sunglass Hut. The store partners with a financial institution you’ve probably already heard of, maybe even one that’s already turned you down; the retailer gets your business, and the bank works out the particulars, usually at a higher interest rate.
Might as well try, right? The well can be fairly dry for first-time borrowers, but depending on your current credit score, you could qualify for a card that offers you cash-back, airline miles or other benefits.
And, obviously, if you’re in a position to choose among perks, you want the ones that best meet your spending profile, which you know better than anyone. Make sure you go through the fine print on a credit card’s rewards carefully, though; often, a card will offer rotating perks that change monthly or quarterly.
Incentives For Good Behavior
“Look for a card that rewards good behavior,” said Andrew Housser, a consumer finance specialist and co-CEO of Freedom Debt Relief. “Some cards offer a bonus each month when the bill is paid on time. Some offer a waived first late-payment fee, which should never have to be utilized in the first place; others offer no foreign transaction fees … which can be helpful for someone who often travels internationally.”
2. How To Apply (And Not Get Rejected)
If you’re just starting to build credit, you will probably get rejected — maybe even several times — in your quest to open a credit card. That’s fine, and it happens to many people.
Much like being bad at money in general, your temporary inability to get a credit card is not a moral failing.
That said, there are a number of things you can do to raise your chances of getting accepted — and keeping your credit score from dipping during the application process.
Check Your Credit Score Monthly
As tempting as it is to avoid the hairy truth of your financial situation, you need to know exactly what kind of credit you’re dealing with. This will help you calibrate your expectations for what tier of card you can apply for, and it’s also just a smart habit to develop; if you check your score regularly, you’ll be better positioned to triage it, if necessary. Plus, you’ll be able to spot and report any fraud as soon as it occurs.
It’s a good idea to always have a free, direct line into your credit score; you should be able to pull out your phone and check it at any time, within a month’s accuracy. And this is a pretty reasonable goal — many budgeting apps and bank accounts offer free credit score monitoring.
At the very least, pull your credit report as often as you can do it for free.
“Each of the three major credit reporting agencies — Equifax, Experian and TransUnion — is required to provide consumers a credit report once a year,” Housser said. That means you can pull a free report once every four months.
Important: annualcreditreport.com is the official, government-recognized website for pulling said credit reports. Almost any other site you find by Googling “free credit reports” will end up charging you money, no matter how much the word “free” is in the branding — take it from someone who once worked for one of them.
Apply For A Card That’s Within Your Credit Range
“The best tip I have to avoid getting rejected is to only apply for the cards you’re qualified for,” Lisa Rowan, a writer and savings expert at The Penny Hoarder, told me. “Generally, credit cards are designed to meet the needs of specific kinds of applicants. For example, some cards are for those who have an excellent credit score (750-plus) while others are designed for those who are still improving their credit scores.”
So, basically: Be realistic, not aspirational. Don’t get lured into applying for a preferred card with fantastic perks for which you have very little hope of getting accepted. There’s no essay portion in a credit card application — no way to demonstrate your unquantifiable value to an issuer. If your credit doesn’t qualify, it doesn’t qualify.
There are a number of good-faith, third-party review websites out there that will tell you the ideal credit score ranges for specific cards. Before you apply, look up this range — and if you don’t fall within it, keep looking.
Don’t “Spray And Pray”
“Each time you apply for a new line of credit, your credit score drops — if you have one — about 10 to 15 points for about one to two months,” Morphew said. “You can get around this by doing all your ‘shopping’ within a 30-day period. By doing this, your credit score is only impacted one time.”
Be intentional and realistic. You’ve done your research on the credit cards you want and you know roughly what you qualify for; time to pick your best bet. Don’t apply for more than one card at a time; wait till you get rejected to apply to your second choice.
Try Your Luck With Legacy Connections
Consider looking at a financial institution that already has some of your business — you could be grandfathered into a credit card account, based on how reliable a customer you’ve been for them.
“Start by going to where you bank to apply for your first credit card,” Morphew said. “Since you have no credit history, they can evaluate your ‘risk’ by looking at your bank accounts. How long you have had your account open, history of overdrafts and average balance will be factored into their decision to give you a line of credit.”
Do this in person — an online application might not give you the opportunity to note that you’re already a customer — and don’t pin all your hopes on this. In my experience, banks and credit unions will indeed take sides against the family if your credit is that bad.
List Multiple Sources of Income
Credit card issuers like to see that you make a steady stream of income — and, unfortunately, size matters. This means freelancers and lower-income applicants will have a tougher time getting approved, especially if they don’t have credit.
There’s no way around this, but you should make sure that you’re reporting all applicable sources of income — you’re allowed to calculate more than just your base salary into the final amount you put down.
“State your income accurately,” Housser said. “Along with reporting salary/employment income, applicants over 21 generally can also list non-employment sources such as investments, spousal and child support, retirement benefits and government benefits.”
Additionally, as of 2013, a married person can also include a spouse’s income — as long as there is a reasonable expectation of access to it. (Thank our beleaguered brothers at the Consumer Financial Protection Bureau for that one.)
3. What To Do If You Get Rejected
Chin up. Remind yourself of your good qualities outside of your creditworthiness.
But also: You now basically have two viable options for moving forward.
Wait And Build Credit Another Way
Option one: You are free to diminish, and go into the West, and work on building your credit through other methods. Then, in a year or so, you’ll apply again with a better chance of getting accepted. Think of this as your gap year.
There are several ways you can build credit without ever going near a credit card application:
- Are you the person who got stuck paying the utilities in your house or apartment? You might be able to get credit for that. Make sure they’re in your name and that you’re paying them on time. (That second part is just garden-variety good advice, if only to avoid getting disgruntled calls from your power company.)
- Consider opening a credit builder loan.
- Do you have auto, personal or student loans? Those all count toward a history of repayment.
- Can your parents add you as an authorized user on one of their credit cards? This is probably the easiest way to get a good credit score without doing a single thing. Side note: It doesn’t benefit your parents at all, and only opens them up to risk, so: Tell them to form an orderly queue.
Get A Secured Card
If you don’t want to wait a year or so before your second attempt, great news: There is a type of card for which everyone is qualified, regardless of credit history. It’s called a secured card, and it comes with one catch.
“You give the credit card company a certain amount of money — say $300,” Morphew explained. “In exchange, they give you a $300 credit card which is secured with your $300, which they have put in an account to hold for you until you have established you are a responsible card holder — meaning, you pay on time each month. After a period of time, usually 12 months, your bank will give you back the original $300 and you now have a line of credit.”
If you’ve exhausted all other avenues, a secured card is the way to go. You’ll have a card immediately that will effectively function like a checking account, you’ll get to build credit for a year and your bank will, at some point, transfer you to a non-secured credit line, elevating you to the ranks of cardholders everywhere.
4. How To Use Your First Credit Card To Build Credit
Once your application for a credit card is, at long last, accepted, it’s time for your “Pretty Woman” moment. Those other issuers that didn’t want to give your cruddy credit a chance? Big mistake. Huge. You’re going shopping now.
Actually, you’re just going to be putting one or two monthly bills on your card and setting up automatic payments to clear the balance every month. The best revenge is an ascendant credit score.
It’s not hard to build credit once you have a card; most of being good at credit is biding your time, paying bills relatively promptly and keeping your debt down.
To get more technical, FICO scores — which are the industry standard for lenders — use five factors to calculate your credit; your job for the life of this credit card is to do your best to stay on top of them.
Here they are, in order of priority:
- Payment history (35%): On-time payments make up more than a third of your credit score, which means missing even one can put you in a deep hole. At the very least, make minimum payments each month. If your checking account is replenished often, set up an automatic payment schedule. The more mindless it is for you to stay on top of this bill, the better.
- Amounts owed (30%): This factor largely has to do with your credit utilization ratio, which is how much of your credit limit you’ve used up and not paid off. The easiest way to get full marks in this category is to pay off your balance every month; if you can’t do that, try not spend more than 30% of your available credit.
- Length of credit history (15%): To be honest, there’s nothing you can do about this except wait patiently. FICO scores are weighted toward people who have been using credit longer, and you just got your first credit line. Let the inexorable passage of time do its work.
- Credit mix (10%): This is one example where you might know what’s better for you than a credit scoring conglomerate. FICO privileges people with different types of credit — both revolving (that would be this credit card) and installment (auto loans, student loans, mortgages, etc.). If all you have or need right now is a credit card, that’s fine; there is no universe where you should take on debt just to raise your credit score.
- New credit (10%): FICO keeps a tab on how many new accounts you open, as well as hard inquiries. Keep it simple: Stick with the one credit card for now.
Building credit is mostly about forming good money habits: Don’t spend more than you can pay off, keep credit available for emergencies and circle payment due dates on your calendar. The rest should, hopefully, take care of itself.
Follow me on Twitter for money tips and personal financial mishaps that I’m passing off as teachable moments. You can also find more writing at my site, On We Blindly Stumble.