This topic actually came to me in a conversation with my mom. She was worried that my younger brother (22) has no credit and no foreseeable need in the direct future. I suspect this is a problem that a lot of young people have. After all, it’s easy to get a credit card or a loan ONCE you have credit, but how do you get the first one?
There are a few ways you can get credit, even starting from 0 (see my post about credit scores, if you’re confused about what I’m talking about).
1. Be an authorized user on someone’s existing credit line.
This is how I first started getting credit. My mom put me as an authorized user on a small store credit card (she didn’t even let me carry the card). We used it here and there, but always paid it off. Since I was listed on the line of credit, my credit score was reported.
This only works in a few scenarios:
You completely trust the person you put as an authorized user. They will be able to use the card as if it were their own, so you have to be careful! In my case, my mom never actually gave me the credit card, but just formally put me on the account.
Often (if not always), you have to be family members with the primary account holder. This works best in a parent/child situation where the parent has control over the card and spending periods.
2. Get a secured card.
This is the best option in my opinion, especially if you are an adult and on your own. It takes some time, and most of them have strict restrictions (minimum down, annual fees etc.).
What is a secured credit card?
As the name implies, a secured credit card is secured in cash. The amount you deposit is the credit line you have access to. That means if you deposit $500, you are handed a credit card with a $500 limit.
If you don’t pay the bill, the credit card company takes the money from your deposit. This is how they protect themselves from the “riskier” borrowers (aka the ones with no or very low credit)
Why it’s great
Using a credit card is the quickest way to build credit
Many secured credit cards allow you to product change-aka upgrade to a different credit card
When you close your account (or upgrade to a non-secured credit card because you now have awesome credit!), you get your deposit back!
NerdWallet has a list of their favorite secured credit cards
3. Apply for a “student” credit card
In certain situations, you don’t have to take the first step of applying for a secured card. Sometimes, certain people (often college students) are able to bypass the secured card step because they have a “0” credit score. They’re not necessarily riskier borrowers just unknown risk.
NerdWallet also has a list of their favorite student credit cards