Do the words “financial freedom” sound like music to your ears? They sure do to ours! At times, it may seem like obtaining that freedom is an uphill battle or even an impossible feat. But there are various steps you can take to achieve it, such as building a positive credit history. One of the most common, effective ways to do this is by getting a credit card and practicing good credit habits.
Whether you’re preparing to send your child off to college and want to help them start their credit journey or you’re simply itching to boost your credit, you’ve come to the right place! In this blog, Highlands Community Bank will be sharing some smart tips and useful info to guide you in building credit.
When Can You Get a Credit Card
Depending on the card issuer, parents can sign up teenagers younger than 18 as authorized users of credit cards. But the minimum age to open a credit card as the primary account holder is 18 years old. It’s worth noting that there are typically strict verification requirements for applicants between the ages of 18 and 20. This is due to the Credit CARD Act of 2009, which was enacted to protect consumers from unfair practices by credit card issuers.
How to Get a Credit Card If You’re a Student
The Credit CARD Act of 2009 requires applicants who are 18-20 years old to either have a cosigner (i.e. a parent, guardian, or another family member) or provide proof of income to verify their ability to independently repay what they borrow.
Examples of income can include:
- Salary
- Paychecks
- Tips
- Bonus pay
- Interest
- Or even an allowance that is regularly deposited into your bank account
Upon turning 21, the application process won’t be as lengthy, but card issuers will still want to verify the applicant has a reliable form of income. If need be, they could include another person’s (such as their parent or spouse) income that is available to them. Additionally, the applicant could include alimony, child support, or separate maintenance income if they wish to use it as a basis for repayment.
And here’s a perk for college students: there are student cards out there that usually have more flexible requirements than standard credit cards. Students can usually apply without having much credit history; many card issuers will approve applicants if they can provide proof of college enrollment and some form of income.
Student credit cards can be very beneficial for making everyday purchases and as a way to introduce young applicants to the world of credit. Issuers usually offer applicants credit-building tools, like free FICO score and credit report access to help students learn how to manage credit responsibly. On top of that, many issuers offer rewards such as:
- Cashback
- Travel points
- Statement credits for good grades
How to Get a Credit Card If You’re Just Starting Out
For those who are just starting out or are aiming to build credit, it’s important to keep in mind that your first application may be denied. One of the most common reasons credit card applications are denied is because the applicant’s credit score doesn’t fall within the issuer’s recommended score range. Every issuer has its own recommended range, so keep an eye out. We’d highly advise you to do your research and compare different cards before applying. You’ll want to take a close look at the card details like the annual percentage rate (APR) and yearly fees to determine which card may be best suited for you.
We know that having your card application denied can feel like quite a blow. It may leave you wondering what went wrong, and you may want to reapply. But we recommend you wait to reapply. A good rule of thumb is to wait at least six months between applying for credit cards.
There are other types of cards available such as:
Unsecured credit cards
These are the most common credit cards out there. An unsecured card is not secured by collateral, meaning you don’t have to put up collateral (like a deposit) to get approved.
Secured credit cards
This credit card type requires applicants to make a security deposit with the card issuer to open an account. The deposit is then held by the credit card issuer while the account is open. A secured card would be great for a first-time cardholder or someone with little to no credit history.
Business credit cards
A business credit card is a card used solely for business spending purposes. These are cards that offer unique benefits suited to businesses like the ability to earn company-specific rewards and boost your business’ credit rating.
Store credit cards
Store credit cards typically may only be used at specific stores. Applicants can purchase items using the card and pay off the charges over time.
If you apply for a credit card, know that it can take anywhere from seven to ten days to receive the card. This varies from issuer to issuer, and also depends on factors like where you wish the issuer to send the card. Though some issuers will offer instant access to your account, which means you could make a purchase online or by phone before you receive the physical card.
What You Need to Open a Credit Card
Credit issuers will normally require you to share the following personal information:
- Your legal name
- Your Social Security or Individual Taxpayer Identification Number (ITIN)
- Your address (it must be a valid U.S. address)
- Your income
- Your housing costs
Depending on the issuer, you may be asked to provide other information as well, for verification purposes.
When you open your credit card, it’s crucial that you adopt some good credit habits and be a responsible credit card user.
How to Keep Your Credit in Good Standing
This entails reviewing and more reviewing! You’ll want to be sure to know your payment date(s) and make your payments on time. Use your card wisely so you’re not spending beyond your means, and so you can stay below your credit limit. Experts say card users should maintain a credit utilization rate below 30%. We recommend maintaining your credit history by using resources like Credit Karma. Credit Karma gives users access to their full reports, financial tips, and curated offers. It can really come in handy!
In time, you may want to consider requesting a credit line increase. When you increase your credit limit, it’ll instantly lower your overall credit utilization, which would raise your credit score. You’ll have a better likelihood of being approved for a credit increase once you’ve established a responsible fiscal relationship with your card issuer. When you request this, your issuer will also look into other factors like your income, debt, the length of your overall credit history, positive credit experience, and your credit mix (the different credit accounts you have open such as loans or retail cards). If you are approved for an increase, you’ll benefit from the ability to spend more, which can be extremely useful in case of emergencies and when you need to make a large purchase or payment. That could open up a door to more rewards, too!
Any more questions about credit cards? Give us a call!
We’re all neighbors, out here in the Highlands. You can contact us anytime to get more financial advice! Our team is here to help.
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