Published in: Credit Cards | Nov. 20, 2018
By: The Ascent Staff
A credit card is usually the first entry on most young adults' credit reports, but many find it challenging to get approved for that first card. Lenders are often hesitant to work with young adults, because there's less data to indicate how they'll handle the responsibility, and card issuers want to be confident that they'll get back the money they lend to cardholders.
Fortunately, there are two types of credit cards that you can qualify for even if you don't have any credit history to your name. I'll discuss them below, along with advice on how to choose the best option for your situation.
Student credit cards were created to help college students establish a credit history. They work just like regular credit cards, but they're much easier to qualify for. You don't need a certain credit score -- or any credit history, for that matter.
However, you do need to be 18 or older and provide proof that you're enrolled full-time or part-time in a qualifying university. You'll also have to provide proof of income. A part-time job is fine in most cases. The card issuer just wants to be sure that you have a means to pay back what you owe.
Some student credit cards offer rewards just like regular credit cards, but don't expect to rake in hundreds of dollars in cash back or airline tickets. Student credit cards typically have lower credit limits -- often $1,000 or less. So if your card offers 1% cash back on all purchases, the most you'd earn in a month would be $10 in rewards. This is disappointing to some, but remember: You're not getting this credit card for the rewards. You're getting it so you can establish yourself as a responsible payer.
Some card issuers will automatically increase your credit limit after a few months of full, on-time payments. If they don't do this automatically, you're always free to ask an issuer for a credit limit increase. When you graduate, many card issuers will upgrade you to one of their regular credit cards, either automatically or at your request. Ideally, at that point, you'll have established enough of a credit history that you can apply for other credit cards that interest you as well.
Secured credit cards aren't designed just for students, but they can be a good way for young adults to build their credit if they don't qualify for a student credit card. They're called secured cards because they require a security deposit. This amount is usually equivalent to your credit limit, and it starts around $200, though you might be able to put down more if you want a higher credit limit. If you fail to pay back what you owe, the card issuer will keep your security deposit. But as long as you keep up with the payments, the company will refund your deposit if you ever close the account.
The security deposit lessens the risk to card issuers, so you don't need a good credit score in order to apply for one of these. In fact, you might get approved if your score is under 600. But these cards tend to carry high interest rates, often in excess of 20%, so they can hurt you if you carry a balance from month to month. Many of these cards also come with annual fees, though it's possible to find some that don't.
Rewards among secured credit cards are rare, but they do exist. As with student credit cards, however, the low credit limit on secured credit cards doesn't allow for high rewards-earning potential. Once you've proven yourself to be a responsible payer, your card issuer may automatically consider you for an upgrade, or you can request one yourself.
Student credit cards are the better choice if you qualify. Many don't charge an annual fee, and you don't have to put any money down in order to be approved. But if you don't qualify for a student credit card, either because you're not enrolled in a university or because you already have some bad marks on your credit report, a secured credit card is a good alternative.
Whichever type of card you choose, it's important to use it responsibly. If you stay below your credit limit and make all your payments on time, a credit card can go a long way toward improving your credit score. But it could just as easily ruin your credit if you begin skipping payments or regularly spend up to your credit limit.
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