Building good credit is one of those things in life that just seems so “adult.” And it’s especially important in an ever-growing cashless world. Showing you can responsibly use a credit card is how you become financially independent. The sooner you start, the faster you can begin to establish credit. However, you do have to wait until you’re at least 18 to begin. That said, getting a credit card before you turn 21 can be tricky.
Should I get a credit card at 18?
Eighteen is the minimum age you can be as a primary credit card holder (for most card issuers). But, if you’re under 21 years old, it can still be difficult to be approved. Federal law limits the abilities of credit card issuers through the Credit Card Act of 2009. This requires all applicants to prove adequate proof of full-time income to be eligible. And this can pose a problem for many 18-year-olds, but it doesn’t mean you shouldn’t try!
First things first though, ask yourself “am I responsible enough to get a credit card?” If you’re able to pay your bills on time every month in full, without failing to meet any other financial obligations, you might be ready. Ideally, you should make enough money to cover your bills, credit card expenses, and any other debts you may have. Here’s what you need to know if you feel you’re ready to start exploring credit card options.
Why it’s difficult to get a credit card at the age of 18
You’ll need to show proof of income
It always comes back to the bottom line. Credit card issuers need to know your income to ensure you can pay your credit bills. Not only will your income help determine if you’re approved or not, but it will also factor into the amount of credit line you’re approved for. This can be challenging if you go to school full-time or you are currently unemployed. The Consumer Financial Protection Bureau (CFPB) has established specific restrictions on banks providing credit cards to people under the age of 21. This includes that they either have an independent ability to make minimum payments or they have a co-signer who is at least 21 and can be liable for any unpaid debt. So students in this age bracket typically report their personal income from a regular allowance or any current work, plus any residual money from scholarships or financial aid (that are not student loans) leftover from paying tuition and other school expenses. Students may also have the option to include any reasonably expected income that can prove to credit card issuers you can pay them back in the future. This includes any third-party income you may have access to.
If you’re over 21, you won’t be required to have a co-signer and there is a broader list of acceptable sources of income such as: income from self-employment, like freelance work or a side hustle, allowances and gifts from your family or other third parties, spousal income, and any scholarships, grants, or financial aid (only what’s left after you’ve paid tuition and other expenses).
It’s also important to note what doesn’t count as income! Meaning, do not list the following on your credit card application: student loans or any borrowed money, any nonexistent income (a.k.a. lying about money you don’t have), or any income you don’t actually have access to, like garnished wages for child support.
You don’t have credit history
Most 18 year-olds don’t have credit history. It can be tough to get a credit card without a credit history. Issuers want to be sure you can pay back your bills on time, and credit history shows your worthiness. That said, it isn’t impossible. Keep reading to learn several ways you can apply for a credit card.
When should I get a credit card?
A lot of handling a credit card responsibly requires skills you most likely already use in other factors of your life! For example, meeting homework deadlines at school. If you always turn in your assignments on time, you’ll probably be better prepared than most to pay your credit card bill on time. Other signs you might be ready are: you have money in your savings and checking account, you understand how credit cards work, you’re organized, you have responsible money management habits, and you have a fund for emergencies.
Some big red flags that you might not be ready include: you have an unreliable income, you don’t have a budget, your bank accounts are frequently over drafted, you’re unlikely to review your credit card statements to pay bills on time and prevent fraud/unauthorized purchases, or you want to use a credit card to buy things you can’t afford. If any of those sound like you, you might want to start forming healthy habits so you can eventually be ready to get a credit card!
How to get approved for your first credit card
If you want to start building credit, here are a few ways you can avoid certain obstacles (like lack of income or credit history).
Option #1: Become an authorized user on a parent or legal guardian’s credit card
An authorized user is when someone is added by a primary cardholder to a credit card account. They are then permitted to use that card. Usually, the authorized user has their own credit card in their name. Then, their card activity and payment are recorded on the primary cardholder’s account. This is a great way to build credit because authorized users can make payments the same as they would with any other card. But, at the end of the day, the primary cardholder is responsible for all payments on that card. So it’s important to establish expectations and boundaries about how much can be spent (and who will pay it) before agreeing to authorize someone.
An authorized user will also benefit if the primary cardholder has good credit. A primary cardholder’s account history and activity are then documented on your own credit report, so it will help you build your own credit history. Note that not all credit card issuers do this though, so it’s important to ask before signing up.
Option #2: Apply with a co-signer
Another viable option for getting a credit card when your age limit gets in the way is to apply with a co-signer. The co-signer would be responsible for any payments if you fail to make them. This means that whether you’re approved or not for a credit card depends entirely on your co-signers credit history. Lenders want to know that your co-signer has good credit and can repay any debts if necessary. Usually this person is a parent or guardian if the applicant is under 21. Whoever you may choose, be sure to discuss expectations about who will be making the payments, as well as any other potential consequences for each other’s credit profile.
Option #3: Apply for a secured credit card
If you don’t want to involve someone else, a secured credit card may be the right choice for you. They’re usually easier to qualify for because they require you to make a deposit that determines the card’s limit. As long as you make your payments on time, you can get your deposit back and eventually upgrade to an unsecured credit card with the same issuer. Or, you could close your account and get a new credit card elsewhere. Be sure to check if your secured credit card will let you earn cash back rewards.
What credit card should I apply for first?
Credit card options are pretty limited when you’re just starting out. It’s common for applicants to be denied simply because they don’t have a credit history. Which is frustrating because you’re trying to build your credit history! However, don’t rush to apply for several credit cards thinking it will increase your chances of approval. It will actually hurt your odds (and possibly, your credit score) because it shows credit card companies that you may be financially unstable. Be strategic with your applications. Don’t apply for the same type of card if you’ve already been rejected. And if a secured card isn’t an option, consider a student credit card. They can sometimes require a credit history and a student status to qualify, but not always. This type of card works like a regular credit card, but they have lower limits and less incentives. Be sure to ask your lender if this is an option for you.
An alternative credit card might also be something worth considering. Startup companies have skipped credit checks entirely and are letting people use income, employment, or their bank account as means to get an alternative credit card. These function like regular credit cards and some don’t even charge interest or fees.
Tips on how to start building credit with a credit card:
Once you have a credit card (whichever type of credit card it may be), you can build credit by using it every month, paying your purchases off on time, and keeping a low credit utilization.
There are other ways you can build strong credit other than simply using it. One key factor is making sure you pick the right card for you. Do your research and consider your needs. For example, what will you use the card for? Do you plan to pay for travel with your card? Can you afford it at this time? Once you have an understanding of why you need a card and what you use it for, compare your needs to the terms of the card. A card that earns you airline points might be the best option if you plan on flying a lot! It all depends on what you need.
This might be our most important piece of advice: always pay your credit card bill on time. Even missing one payment can substantially hurt your credit score. And a good credit history is essential for credit limit increases and other future approvals like renting an apartment or buying a car. If you can’t afford the entire bill, make sure to at least pay the minimum before it’s due.
That said, it’s important to pay the full amount of your credit card bill whenever possible. Only paying the minimum requirement will keep your account open, but it won’t save you any interest. If you pay in full by the due date, you won’t have any interest, which will save you money in the long run and keep your credit score in good standing. Plus, you don’t want to get into the habit of spending more than you can afford.
Lastly, don’t max out your credit limit! If you use more than 30% of your credit, you risk damaging your score. Typically, 1%-10% credit utilization is a good place to be in (and will help your score the most). You’ll also want to regularly check your credit score to make sure you’re staying in that range. It also helps you catch any errors on your credit report and dispute them right away, which will also help your overall score.