In a perfect world, creditworthiness would be judged by three things:
- The ability to pay debts
- Personal character and habits
- Common sense
Alas, this is not the world we live in. Millions of less-than-reputable consumers are granted lines of credit every year, while their responsible counterparts are left out in the cold. This point was illustrated during a conversation I recently had at a backyard barbeque with a 22-year-old named Dex.
Dex graduated last year from a reputable university, has no consumer or student debt, and works for one of the most well-known tech companies in the world. So, why can’t this guy get approved for a credit card?
“How old is your credit history?” I asked as we munched on grilled chicken.
“Um, about eight months I guess,” he said.
There’s the answer. Despite Dex’s maturity, earning potential and modest lifestyle, his meager credit history prevents him getting approved for new lines of credit. “It’s the most bizarre irony,” Dex said, “I can’t get a credit card because I have no credit. What kind of logic is that?”
What kind, indeed? While Dex’s predicament is absolutely unfair, it’s absolutely common as well. Creditors can’t judge a history that doesn’t exist, and unfortunately for Dex, income isn’t a factor on his credit report. So, what’s a newbie to do? If you are in a similar boat and determined to establish new credit, consider the advice I gave Dex.
Use what you have
Dex’s credit history began when he rented his first apartment. Faced with the same credit history issues, his parents used their credit scores to cosign his lease.
Ask for a favor
While no one should rely on Mom and Dad as an adult, a small favor could help you get on your feet. If they are willing, ask your parents to cosign a new line of credit for you. Once you have established yourself as a responsible borrower, it’s possible to remove their names from the agreement.
Major credit card providers are skittish about contributing to a thin credit file, but you might have better luck with department stores. Think about where you shop for clothes, supplies, athletic equipment, tools, etc. The next time you are in the checkout line, ask for a store card application. While you shouldn’t open too many department store cards, using one or two will add helpful accounts to your credit file.
*Bonus: If you’re in Dex’s position, ask your boss about signing up for corporate credit card for business and travel expenses. Approval is likely with the name to vouch for you, and the account will appear on your credit report.
Go back to school
If you are still pursuing an undergrad degree or are applying to graduate programs, look for a credit card that serves you. Several lenders offer credit cards specially designed for the college set: borrowers with lower incomes or no credit history. While they often come with higher interest rates, paying your bills on time will help you avoid credit repair issues. If your credit scores need some schooling, this option is for you