As a participant on numerous credit-related forums and Q & A boards, I constantly answer questions from teenagers and students about applying for their first credit card. The overwhelming majority are unsure about how old they need to be, what they need to qualify and what options are available to help them build their credit. First of all, let me preface this article by stating that YOU SHOULD NOT APPLY FOR A CREDIT CARD until you’re ready to handle the responsibility of good financial management. Even if you can qualify for a credit card, it doesn’t mean that you should get one or that you’re ready to borrow money, manage payments and take on debt. If you think you’re actually ready for the challenge of managing your first credit card, here are some things you need to know.
A credit card is a good first step at building your credit history and preparing for tomorrow. Good credit is the key to securing an auto loan, mortgage or any financing that you may need in the future such as capital for a new business venture or in the case of an emergency. Your credit score is also used by rental and leasing agencies, cell phone providers and even employers. If you’re 18 years or older you can legally qualify for a credit card, but there are a few stipulations.
The Law – How Old and What Age
According to federal law enacted in 2009, credit is available to anyone 18 years or older, but if the applicant is under 21 they have to prove that they have sufficient income to cover payments. This often means a full-time job with at least one year of employment history.
If you fall into this category, a student credit card is an excellent choice since they provide competitive rates and often include no annual fees. Student credit cards are traditional ‘unsecured’ forms of credit and require no collateral to secure an approval. Typically, first time applicants will receive a small credit limit of $1000 or less, which may be slowly increased as you prove your creditworthiness.
What If You Don’t Qualify – Other Options
If you’re under 21 and don’t have a full-time job or sufficient income to warrant your first credit card, there are still a few options to consider:
- Find a Co-Signer – If you’re 18 or older and have a parent or guardian that will co-sign, they will act as a guarantor of your new credit card account. If you fail to pay or run into problems, they’ll be held responsible and will be expected to pay on your behalf.
- Become an Authorized User – If you become an authorized user on your parent’s or guardians’ account, the activity of that account will be reflected on your credit report. Of course, if they fail to pay or act irresponsibly, that will also be reflected. Not only is this option available to adults, 18 years or older, but teenagers under 18 can become authorized users as well. Actual ages will vary by credit card issuer and all activity is reflected as an ‘authorized user.’
- Get a Job or Increase Your Income – Although this isn’t a quick-fix, showing a stable employment history and more income will improve your chances of being approved for your first credit card. What a bank considers ‘sufficient income’ will be dependent on each bank, but if you have one year of stable, full-time employment then your chances for approval are good.
- Consider a Secured Credit Card – A secured credit card is not credit in the traditional sense – your credit limit is determine by the security deposit you provide as collateral. For example, if you deposit $200 you’ll be provided with a $200 credit limit. This may not seem like a great opportunity, especially since you’ll pay some extra fees for the privilege of carrying a secured card, but all your activity will be reported to the major credit bureaus and your regular, on-time payments will help build your credit score. Follow through for a year or so and you should be able to qualify for a more traditional, unsecured card.
Be Vigilant With Your First Credit Card!
Keep in mind, just one small mistake like a late or missed payment can severely impact your credit score. It can take years to correct debt and credit-related issues, especially if you make mistakes regularly and don’t act responsibly with your first credit card. Ideally, you should payoff your balance in full each month and only carry a small balance when it’s absolutely necessary. If you must carry a balance, make sure you pay at least the minimum payment each month – AND ALWAYS PAY ON-TIME! Keeping the balance below 50% of your available credit limit will also have a positive impact on your credit score and will keep moving in the right direction.
* See a complete list of credit cards for students by CLICKING HERE