I was probably eighteen when I got my first credit card.
Well, not exactly. You see, my mom listed me as an authorized signer on hers at the time and gave me a card, noting it was "strictly for emergencies." But it wasn't until I was 21, working my first full time job, and knowing that I needed to start building my credit, that I finally took the plunge as a solo cardholder.
Here are some lessons looking back.
I should've started earlier.
Your credit score is made up of a lot of things – a helpful breakdown is on our credit scores page – but a considerable factor is how long you've had your credit history. Now, it might sound great that I had a three year head start with my mom's card, but the fact is, lenders look at authorized signers differently than they do a traditional borrower. That's because an authorized signer isn't technically responsible for paying the card back (sorry, mom), so it's weighted differently on new loan apps.
So, what's a better idea? Start early. There are a few ways I could've gone about it, and there are a few ways you can, too.
First up: try for the traditional card on your own.
Depending on your income to expenses and how long you've had your job, you may qualify right off the bat. That's not always the case, though, and that's where co-borrowers and secured cards come in.
Have a trusted co-borrower apply with you.
A co-borrower is someone you can put joint on your loan or credit card and – unlike an authorized signer – both parties are responsible for paying back the loan. If you're 18 to 20, for example, discuss applying with a parent or guardian as your coborrower. As someone who doesn't have a credit score or credit history, you're unlikely to get approved for your own line of credit without someone on your account to help you qualify. They're hopefully going to help you compare rates and set a responsible limit for your first experience as a cardholder. Bottom line at any age: it should be someone you trust.
The other option is a "share secured" credit card.
With a secured credit card, you agree to hold some of your own money as collateral to the institution, with the credit limit tied to your investment. So, for example, if you agree to lock $500 of your savings into what your institution calls a "hold", then you now have that as a $500 credit line. It basically gives your institution the peace of mind that you – as a new borrower – have something to fall back on in case you default on your payments. The money's still yours, you just can't access it. Then, after say a year or two of you making your payments and building your credit history, you may qualify for a normal, unsecured credit card.
Spending less is key.
A full third of your credit score is tied to your capacity – that's your limit tied to the balance you put on your card – so it's important not to let your balance get too high. That means you should use it for small stuff like gas and groceries, then pay it off. So, while a brand new PS5 might sound great, make sure you pay attention to your credit limit before taking the plunge.
Store cards aren't the best.
We've all been there: you're standing at checkout trying to buy sneakers or something and the cashier says, "Would you like to sign up for a credit card today and save 10%?" Here's some advice: your answer should always be "no".
That's because store credit cards have rates that normally run over 20%, and that's not even counting fees. They're betting that you can't pay the card off right away and then you'll get nickle and dimed to the point that your 10% discount or "bonus cash" doesn't matter.
Instead, go to your financial institution. You're far more likely to get a better rate, especially if it's a credit union.
Rewards matter (and you should use them)
Most credit cards come with rewards, and it's in your best interest to not only find a card with a good program, but that you actually use the rewards. Oftentimes, you can use rewards for merchandise, cash back, even donations if you're feeling philanthropic. Check out your program and shop around for the best deal.
If you're thinking about a credit card or wondering how you can build credit or manage debt, reach out and ask. Chances are, if you're reading this, you're already a member, so stop by your local office or give us a call at 800.242.2120.
-Devin M.
