Credit card issuers can't seem to deal plastic fast enough to college students with no
credit history and no income. It's estimated that more than two-thirds of college students
have credit cards because banks and other issuers are willing to gamble that parents will
bail out their kids if they get into trouble. But if you're among the one-third of
students who resist the pressure to get a card while in school, once you graduate you may
find that you're considered as risky a credit prospect as Bonnie or Clyde.
"The best way to get credit is to be in debt," says Todd Meagher, president
of Credit.com, a consumer-education Web site, because card issuers can
gauge how reliable you are when it comes to repaying. Credit card and mortgage payments
are regularly reported to the three credit bureaus (Equifax,
888-532-0179; Trans Union, 800-888-4213; and Experian,
888-397-3742), but most consumer payments -- including rent, insurance and even student
loans -- are not, unless there's a problem.
"You could pay your rent and utilities for five years and be a good customer, and
you won't get any credit for it," says Meagher. "But miss a payment once
and -- bam -- it's on your credit report."
That doesn't mean you've missed the boat if you didn't get a credit card in college.
Competition is so fierce among card issuers that you may be able to establish a
satisfactory history in as little as six months -- rather than the year or more it used to
take. If you play your cards right, you might even be able to get credit immediately.
Winning strategies
Start by checking
copies of your credit report. If you've been turned down for credit within the past 60
days, the credit bureaus will send you a copy of your report free; otherwise, you'll pay
at least $9 for each report. Correct any errors and clear up any disputes before you apply
for a card.
Apply first at the bank or credit union where you have a checking or savings account.
As long as you're employed full-time and haven't bounced any checks, your bank will
probably be willing to issue you a card with a low credit limit -- say, $200 -- and
gradually ratchet up that limit if you pay your bills on time. The longer you've lived at
your current address or worked for the same employer, the safer a risk you are.
If your bank isn't willing to issue you a card right away, you can build a credit
history over several months with a department-store or gasoline card (both of which are
easier to get) or even with a small bank loan, as long as your payments are reported to
the credit bureaus.
Bank of America and other major banks often have programs to help you establish good
credit, for instance, by making you a loan that you repay before getting the money. After
repaying a $500 loan, for example, you'll have $500 plus a good payment record -- and the
rest will be credit history.
First-time cardholders with limited or no credit history rarely qualify for low
interest rates. But you should take the card anyway, advises Meagher. "You can always
renegotiate the rate after six months." If you pay your credit card bill in full each
month, the interest rate won't matter.
Don't shop for several cards at the same time. That mistake -- called shotgunning your
credit -- is sure to sabotage your chances. "Any time you apply for a card, you get
the credit process started," says Paul Richard of the National Center for Financial
Education.
Card issuers checking your credit report will see the other inquiries and assume the
worst -- that you'll get the cards and use the entire credit limit. If issuers think you
have too many cards, they'll be less confident that you'll be able to pay your debts.
"Each inquiry counts anywhere from two to five points off your credit score,"
says Kelly Snowden of American Credit Consulting, which works with consumers who have
credit problems. Pulling your own report to check its accuracy has no effect on your
score.
Being rejected for a credit card can also hurt your chances of being accepted for one
in the future. But those direct-mail offers promising that "you've been
preapproved" for credit really mean that you've been preapproved to apply for a card.
"You can still be turned down," says Meagher.
The quick route
One of the fastest ways
to get credit is to apply for a secured card, which requires you to deposit money in a
savings account or CD that is frozen while you have the card. "That takes the risk
out of it," says Robert McKinley of CardWeb.com, which tracks credit
cards and their rates. McKinley chose secured cards for his two sons as their introduction
to credit.
The amount of the deposit varies, and some pay interest on the deposit. Make sure that the issuer will eventually upgrade the card to one that is unsecured.
Sometimes customers who have bad credit ratings or habitually bounce checks are forced
to use secured credit cards, which can be a red flag to other credit issuers. To avoid
tarring good applicants with the same brush, some lenders, including Capital One and
Amalgamated, report all the cards they issue as unsecured.
Before applying for a secured card, find out how it will be reported to the credit
bureaus. Avoid issuers that deal exclusively in secured cards and don't offer the option
to upgrade.
With so many legitimate alternatives, don't be sucked in by Web sites that promise to
get you a card, or that charge exorbitant or unnecessary fees. Some cards charge an
application fee, a processing fee and an annual fee -- and if you're late paying those
charges the issuer slaps on a penalty and charges interest retroactively.
"You'll have a credit line of $500 and a balance of $450 before you've even used
the card," says Snowden. Unless the charge is an annual fee or a deposit for a
secured card from a reputable issuer, don't prepay for a credit card.
GETTING STARTED
