Q: I’ve been reading the blog and obviously there are a lot of sweet signup offers on here, but as a student who has absolutely ZERO credit history, what do I actually have a chance at getting? I do have a job but don’t make much money.
A:This is a great question that doesn’t have an obvious answer. As with most things worth finding it takes a bit of homework. These five facts should help…
Fact #1: Some student cards require you to have established credit
A lot of people automatically assume that you can apply for a student card even if you don’t have any history. Sure you can apply, but that doesn’t mean you will get approved. There are card issuers that require a credit history to be approved for a student card – which can be a catch-22 for a typical student.
Discover is one such example. Their student card is among the best one in the marketplace. But unfortunately, it’s rare for them to approve people who don’t have any credit history.
So if you are brand new to credit, which one should you try applying for first? If I had to pick one, then this is my top recommendation.
Fact #2: Having “no credit” is not the same as “good credit”
A common misconception is that everyone starts with good credit. It doesn’t work that way.
Compared to someone who has bad credit, it is true that banks are more willing to take a chance on a student with no credit history… because you’re viewed more of a blank canvas.
But being a blank canvas is just that. No one knows if it will be turned into a credit masterpiece, or something less desirable.
You have to earn your creditworthiness. Getting a great score will take years and a perfect score is practically impossible to achieve.
Fact #3: Don’t even try applying for “normal” credit cards
You know the ones I’m talking about. The cards you see on TV that give 25,000 bonus points, a free flight, or some other crazy lucrative rewards.
Sorry, but you probably don’t have much of a chance getting one of those.
You have to start at the bottom and work your way up. Since you’re in college – or will be starting college in the near future – that means the best credit cards for you are those which are specifically labeled as being for students. Anything else you don’t have a shot at right now.
And you may be thinking “What’s the harm in trying to apply for something better?” Well actually, there can be a lot of harm and here’s why…
Each time you apply for credit (in any form, whether it’s a card, loan or something else) the creditor will check or “pull” your report.
When they check, that action is recorded on your report. You will hear people call them a credit inquiry or hard credit pull, but both mean the same thing.
Each of these credit inquiries will be saved on your report for 2 full years. During the first year they’re on there, they can actually hurt your credit score if you have too many of them.
The lesson? Only apply for a card if you have a good shot at getting approved!
Fact #4: The law requires you to prove the ability to repay
In 2009 the Credit CARD Act was passed and it was signed into law in 2010 by President Obama. It reformed many things, including how credit cards were marketed to and made available for college students.
In a nutshell, anyone under the age of 21 who applies for a card without a cosigner must show they have sufficient income to cover at least the minimum payments.
Of course, that leads us to all ask the next question; what is considered sufficient income?
The banks remained tight-lipped about this, but what I do know is that I’ve heard from people who make as little two thousand per year get approved for student cards.
Another question you may be asking is what exactly falls under the category of income. The answer will vary by issuer, but it tends to be quite broad. Most banks will allow students to include scholarships and financial support from parents within that amount.
Fact #5: Think you already have a history? You might be wrong
When I was 18 or 19 years old, I thought having things like a cell phone account, apartment, and utilities under my own name and Social Security number were helping me build credit. I was wrong.
The truth is that all those things I listed will not appear on your credit report. Yes, they do check your credit beforehand, but after you get the account opened or sign the apartment lease, they don’t actually report that information to the credit bureaus.
The only time they do report is when you flake on paying the bill. In other words, those things can’t help your credit, but they can hurt it (if you don’t pay).
It certainly can be a frustrating conundrum. Getting student credit cards with no credit is so hard, because your cell phone, apartment, utilities, etc aren’t figured into the equation. It’s definitely not fair, but that’s the way it is for now.
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