I never thought it would happen. I’ve been throwing away credit card offers addressed to my daughter for years. But now that she’s 21, entering her senior year of college, I figured it was time for her to experience plastic, learn to use it wisely and build a good credit profile.
So my daughter and I culled through the latest batch of card offers and found one we liked. I helped her fill out the application for a Citi Dividend Platinum Select Card for Students. She was denied in 24 hours.
Wait a minute, denied? That’s what I thought would never happen. She’s of age, has no credit blemishes, is a full-time student and had applied for a card marketed to college kids. Who do they expect to apply?
The reasons for being denied were stated:
- “The consumer reporting agency serving your area has reported only a limited credit history for you.”
- “Your credit bureau report shows you have no revolving accounts with a balance.”
Well, duh. With little income, who’s going to give her a loan? Besides, she’s just doing what Dad asked when she left for campus three years ago – namely, stick to her debit card, avoid overdrafts and don’t borrow a dime. (Her good fortune is that she has not needed student loans.)
We’ve all been led to believe that the card industry is eager to lead any young adult into an abyss of debt. Okay, that’s still true. But with more stringent laws in this area, creditors today are making young adults jump through hoops first.
You can’t just sign up. At least not for the Citi Dividend card, which is one of the most attractive out there for students. It has no annual fee and lots of cash back on purchases.
First, you have to establish some credit. Which is kind of a Catch-22. You need a credit history to get a credit card; my daughter wants a credit card to get a credit history. Makes your head spin, right?
This is a big deal because young adults need a credit profile before striking out on their own. Forget creditors, which may not take a chance on you (or will jack up the interest rate) without proven
responsibility. (There goes your first new car!) Potential landlords and employers look at your credit score or credit report, too. They want to see that you are not overwhelmed and distracted by money issues.
Blemishes are bad. A history of late payments or collection proceedings can be financially crippling. But it’s also a negative to have no record at all, as my daughter and I just found out. In the card companies’ eyes she is a nonperson. And who wants to take a chance on a ghost?
So how does a responsible 21-year-old with no credit history get over this hump? Here are some strategies:
- Start with a gas card or department store card. They are typically easier to get. Use it. Never miss a payment and always pay more than the monthly minimum. Apply for a Visa or MasterCard in six months to a year.
- Apply at your bank. A young adult who already has a debit card and linked checking account has a relationship with a bank, which can check on how the account has been handled. The bank may take a chance on you right away. Use the card. Never miss a payment. Never charge more than 30% of the limit. Always pay more than the monthly minimum. In six months to a year apply for the card you really want.
- Get a secured card. This is easy. A bank will give just about anyone a credit card if they put up a deposit of, say, $300, which then becomes the credit limit. After using this card responsibly for a year, it should be a cinch to convert to a traditional credit card.
All this takes time. We’re getting a bit of a late start for a student who will be on her own in nine months. But even if she does not get the student card she wants she will get a good credit history by graduation day, and that’s what really matters.
Dan Kadlec @dankadlec
Dan Kadlec is a journalist who has written about personal finance for TIME and other outlets for 25 years. He is the author of three books, a leading voice in the global financial literacy movement, and strategic adviser to the National Financial Educators Council.