Q: I’m in my early twenties and am looking to get my first credit card. My parents are not in my life financially and every time I apply I am denied, assuming its because my credit is non-existent. How can I start building my credit without help from my parents accounts? Is there a certain site? Or do I go to my bank? And is applying to random cards hurting me in anyway?
A: Without any credit it is difficult to start building credit. Randomly applying for credit cards with no strategy for approval will not help you. Since you probably don’t have a credit score the inquiries (credit reviews) from the random applications will not affect you now, but once you do get a card and start building credit those inquiries will remain on your credit report for two years.
A good strategy would be to visit credit.com and view the various types of credit cards offered. Go to the NO CREDIT/LIMITED CREDIT category and start reading the terms and ratings of the various cards. If you find one that suits you, apply. Most of these cards will have a high annual fee and some may even ask for a security deposit. Unfortunately, with no credit history that is the price of being a higher risk to lenders. You can also ask your bank (where you have a saving and checking account) if they offer credit cards that you would be approved for with no credit history.
At the same time try being added to a relative or good friend’s oldest credit card as an authorized user. You will not be responsible for the account but the credit history will be added to your credit profile. It is important that you trust this person and know they have impeccable credit.
Once your secured card shows (takes 3-6 months), the seasoned authorized card could boost your credit score as well. The Fico score will not accept the authorized user card without a primary account showing up on the credit. The older the authorized credit is from your friend or relative the better it will be for the score since aged credit gives you more points. Once you have these two accounts you can build from there.
I recommend having at the least 2-3 credit cards and adding other variety of credit as well. The score likes varied accounts such as installment credit which could be car loans and student loans, as we discussed, revolving credit which includes credit cards, lines of credit, overdraft on a checking account. The most beneficial type of credit to the score is a mortgage since it is the most difficult credit to be approved for. The key is making sure all your payments are made on time and you can afford the balances charged. If you build credit and then can’t manage it you will have poor credit scores.